By Joanne Harris From The Lawyer

Offshore players have high hopes of Singapore but for now the work is limited, so increased competition could stymie firms’ growth

Compared with Hong Kong, Singapore has a small number of offshore firms. Although it is 13 years since the first offshore player, Conyers Dill & Pearman, opened in the jurisdiction, there are still just six firms with offices there.

But with four launches in as many years and more on the horizon it looks likely that Singapore will be a focus for the sector over the coming months.

The early settlers

For Conyers, the decision to be the Singapore pioneer in the offshore sector was taken after some time examining work levels in its longstanding Hong Kong office.

Singapore managing partner Alan Dickson, who moved to the office last year, says Conyers’ Hong Kong office had been used regularly by clients based in the region around Singapore and was getting regular enquiries from jurisdictions such as Australia and Indonesia.

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Timeline & Who’s who – see attachment

“We were overworked in Hong Kong and having trouble recruiting,” he explains. “The decision was made based on what we were doing in Hong Kong through the 1990s. It was natural for us to come here; we had clients here and we perceived a strong demand for offshore services.”

Initially, the office was run as an “adjunct” of Hong Kong, but over time it has grown to become an independent operation.

It took another eight years for the next offshore firm to follow in Conyers’ footsteps, when Caribbean rival Walkers made the leap into the city-state.

Singapore managing partner John Rogers explains that Walkers initially covered all of Asia from Hong Kong, having opened there in 2003. The firm wanted to bring its Asian presence to a “critical size” before expanding.

“A lot of onshore firms we work with have both hubs,” Rogers says. “It was part of our evolution. Only one of our competitors was here, but a lot of our clients were and the banks were. It meant that we were flying here a lot. We had some strategic idea of how it would be worthwhile to be in Singapore.”

Channel Islands firms move in

Following Walkers’ 2009 launch it was another two years before the next newcomer – a firm that was, in many ways, also new to the market. Channel Islands firms Collas Day and Crill Canavan merged in April 2011 and just a month later Collas Crill announced it was launching in Singapore.

Office managing partner Marcus Hinkley says the firm knew it should aim at diversifying beyond the Channel Islands, where work flows predominantly from mainland UK, into new sources of instructions.

“Asia was a no-brainer – it was either Hong Kong or Singapore,” Hinkley continues.

He says Hong Kong is “very much a British Virgin Island (BVI) and Cayman play”, whereas in Singapore, with only two firms present, there was more of a possibility to establish a Channel Islands practice.

Hinkley adds that Collas Crill also felt that continuing integration between the People’s Republic of China (PRC) and Hong Kong could lead to increased risk, with Singapore benefiting as clients looked for alternatives.

“We’re in a world where being a boutique provider in one jurisdiction or just offering one law is no longer enough,” Hinkley says.

It did not take long for Collas Crill to be joined in Singapore by another Channel Islands-headquartered practice. Bedell Cristin opened in July 2012, relocating recent BVI hire Stephen Adams to Singapore to lead the office.

“At that time Hong Kong was a congested market,” Adams comments. “Singapore was attractive to us for that reason, but also we saw the South East Asia region could be better accessed from Singapore than Hong Kong. The lack of other people on the ground at the time was somewhat appealing too.”

Arrival of Maples and Harneys

With the likes of Conyers and Walkers on the ground it was perhaps inevitable that more of the real giants of the offshore world would launch in Singapore. Maples and Calder opened in 2012.

The firm’s global managing partner Henry Smith says “economic growth and the opening up of new markets in South East Asia” were the reasons behind the launch.

“There are relatively few law firms practising Cayman Islands and BVI law in Singapore and so, as part of our Asian growth strategy, the new office not only provides

clients with greater choice but also enables us to better service those clients on the ground,” adds Smith.

The most recent entrant to Singapore’s offshore market is Harneys. The firm has only been in the city-state six months.

“We took the view that it was underserviced by offshore firms,” says office managing partner and global banking head Colin Riegels.

Harneys has a fairly large Hong Kong office, with 20 lawyers, and had been serving South East Asia work from that base, but Riegels says it made sense to establish a separate presence in Singapore as a “little bit of a bet” on the jurisdiction’s future.

“There’s always the danger when you have two countries that are close together of linking them in your mind,” he adds, speaking of Asia as an offshore market.

Law options

Perhaps because of Conyers’ long presence in Singapore, the jurisdictions that are best-represented in terms of the laws practised by offshore lawyers there are BVI and Cayman. Conyers also offers Bermuda law, and Collas Crill focuses on Guernsey and Jersey.

Bedell senior associate Kristian Wilson, who earlier this year spent some time examining the popularity of Caribbean vehicles in Asia, says the fact they are the most-used products is mainly down to structural and historical reasons.

“Cayman firms came here first and were pushing that product,” he says, adding that the flexibility of the BVI company also led to that structure becoming widely used. “Essentially, it’s the flexibility of the BVI product and the ease of incorporation.”

Wilson adds that recently the BVI-focused work has become more complex and high-end.

“We’re doing partnerships now rather than companies, and that requires more bespoke work,” he says.

“We find that institutional clients prefer the stability of Cayman and BVI, as tried and tested jurisdictions with a proven record,” adds Smith.

But Dickson says Bermuda structures are just as popular as BVI and Cayman vehicles.

“Bermuda is a legitimate alternative to the BVI and Cayman,” he argues. “Our competitors like to minimise the importance of Bermuda in the market because they don’t offer the service.”

With most offshore firms in Singapore able to advise on a range of laws, they can be reasonably agnostic about which structures to offer clients.

“When we have a new client we sit down and talk about the differences between the jurisdictions,” says Dickson. “When we have a chance to build something from scratch we talk about all three.”

New kids on the block

The new kids on the block in terms of jurisdiction are the Channel Islands. Both Guernsey Finance and Jersey Finance, the islands’ promotional agencies for the financial services industry, are marketing heavily in Singapore, though how much impact they are having is debatable.

Hinkley says there is more Channel Islands work going on than many think.

“There wasn’t a client who was saying ‘I wish you were in Singapore’, but we knew there were a large number of institutions based in either Jersey or Guernsey with Asian offices,” he explains. “When we did our scoping exercise on coming out to Asia we went to these institutions first. There were enough to make it interesting for us. We’ve since discovered there’s plenty of scope to market the islands and their capability to institutions here.

“If you’re not a Channel Islands firm you won’t see the Channel Islands work.”

However, it is notable that the other Channel Islands firm in Singapore, Bedell, has plumped for a team of BVI specialists to staff its office. Adams and Wilson say they refer work to Jersey, but the amount is small relative to Caribbean work.

“We manage to refer a good number of deals to our colleagues in the Channel Islands but it’s a limited market,” says Wilson. “It’s there but it’s not like the BVI where there’s a big market that can be served. It’s hard to have a sole Channel Islands practice in Asia right now.”

“Jersey Finance and Guernsey Finance are working hard to promote the brand here and it’s early days, but they’re getting some interest, particularly on the private client side,” adds Adams.

Mix of work

Whatever the laws they offer, all the offshore firms in Singapore do a similar mixture of work for a similar range of clients.

Corporate work, capital markets, finance and funds dominate the list and there is a limited amount of litigation.

Capital markets is perhaps not as busy as some would like, with Singapore trying but not yet rivalling Hong Kong for Asian listings.

“We’d like to see Singapore’s stock exchange more active and we’re all rowing the boat in that direction,” Dickson observes. “There’s a lot of competition in that space for listing, and stock exchanges are all competing.”

At Maples, Smith says Cayman-domiciled funds work is busy this year.

“We’re working with a number of established and start-up managers on fund launches in both the private equity and hedge fund spaces,” he says. “Private equity fund formation and downstream corporate and finance work continue to flow strongly.”

Collas Crill funds partner Leon Santos says there is competition from Singapore itself in the funds arena as the jurisdiction has its own well-developed open-ended funds regime.

His colleague Hinkley says the same is true in private client, with Singapore’s trust laws competition for Cayman and Jersey.

“Why would a Singapore lawyer suggest using Cayman or Jersey when they’d be giving away their work?” he asks.

Although Singapore is trying to position itself as a centre for arbitration, the offshore firms are not yet seeing a huge amount of this.

At Harneys, Riegels says the firm has two Singaporean litigators based in Hong Kong who could relocate if the volume of litigation work picked up – although he is not expecting this.

Clients in the region

Clients tend to be based around the region in countries such as Indonesia, Malaysia, Thailand and Vietnam. Lawyers say Australian clients also use offshore structures via Singapore.

Some say Singapore is beginning to take market share from Mauritius, traditionally the main jurisdiction for domiciling and handling offshore vehicles being used by Indian investors or investment into India.

Chinese clients are also important, despite the fact most of the firms in Singapore are also in Hong Kong.

According to Dickson work flowing from China has always been important, but others say the amount is increasing – in part due to the recent turmoil in Hong Kong.

“Mainland Chinese clients are more and more looking to Singapore rather than Hong Kong,” says Hinkley. “If you’re a high-net-worth individual and you’re wanting confidentiality from the Chinese government, setting up in Hong Kong might not get you there. In Singapore it’s much better.”

Dickson thinks the attraction of Singapore for Chinese clients is that it is a more differentiated market than Hong Kong.

“If you’re coming out of Beijing to Hong Kong you’re not getting a different experience,” he points out, describing Singapore as a “garden city” compared with its rival. “I always breathe a sigh of relief when I get back here.”

The importance of the Chinese market to Conyers in Singapore is accentuated by the fact the firm employs several Mandarin speakers to help deal with PRC clients.

The fact that many clients turning to offshore are based in the region means lawyers based in Singapore have more face time than their colleagues back home in the Caribbean or Channel Islands.

“Because Singapore is a proper jurisdiction with high-net-worth people and investment managers living here we’re a lot closer to the end-clients,” says Hinkley.

Riegels agrees that offshore lawyers can get closer to clients in Singapore than back in their home jurisdictions.

“Direct client contact offers fertile ground for referrals to their buddies,” Dickson notes.

For Walkers, panel relationships in Singapore are a key part of the firm’s strategy.

“We’re on a lot of bank panels here – we want to be the main BVI and Cayman firm for lending activity in the market,” Rogers says.

Referrals

But there are other targets for offshore firms to market too – both the local Singaporean firms and their international counterparts.

Dickson says Conyers has always had a lot of contact with local firms, although some of the more recent arrivals think the amount of work from the independents is less than they had expected. Hinkley describes the local firms as “very welcoming” but reveals that less work has flowed from the Singaporean market than Collas Crill expected.

That said, large locals such as Allen & Gledhill, Khattar Wong and Rajah & Tan are cited as regular referrers to the offshore market.

The growing number of international firms in Singapore operating both foreign and local law practices has provided fertile marketing ground for the offshore entrants.

But, coupled with the influx of offshore firms, competition within what remains a relatively small legal market is now fierce.

“A lot’s changed – the local firms used to be in joint ventures with international firms,” points out Walkers’ Rogers. “The strategies of Singapore firms are having to adapt and evolve and the likely target would be a more Asean approach.”

Competition between types of firms in the market is also leading to severe price pressures, according to some.

“Prices are starting to fall, particularly for Caribbean work, because of the number of people offering it. The Channel Islands isn’t affected so much by that but it’s affected because you’re competing on jurisdiction,” says Hinkley.

Dickson points out that all the offshore firms are well-known to potential clients, and reports that Conyers and its competitors are regularly asked to provide quotes for potential matters.

“They know us all and they know what we’re capable of,” he says. “I don’t think they’re all going with the lowest quotes.”

The 10-lawyer limit

The likelihood of more offshore firms moving into Singapore is high, with names from both the Caribbean and Channel Islands circulating the market. At least one is understood to have applied for a licence already.

“It’s a bit of a trendy destination at the moment,” agrees Riegels. “Many law firms are piling in as part of the Asia growth story. I’m always a bit cynical about the next big thing but there’s an element of that; it’s a jurisdiction on the up.”

He adds that Harneys has a fairly large team on the ground in Singapore to respond to the work coming in, but says “the flipside” is that he is not expecting a particularly big increase in headcount.

Indeed, those present agree that significant expansion in Singapore is unlikely.

Dickson notes that Conyers, after 14 years, still only has 10 lawyers on the ground and admits most firms would have wanted to expand further in such a period.

“I hope there’s space as we’d like to see the market grow,” he says. “But there’s a finite amount of work here and that’s a simple fact.

“Everyone here is hoping and counting on the market growing by virtue of the demographics of the surroundings. If we have three or four more offshore firms coming into Singapore, are any of the firms going to get bigger than 10 lawyers? I doubt it.”

Bedell’s Wilson says doing your homework and clearly understanding the complex market is key.

“My fear for a lot of firms coming here is that they’ve not invested in it,” he adds.

Others are a little more sanguine.

“What’s happening in the offshore world seems to be a reflection of what’s happening in the onshore world in Singapore,” Riegels says. “Competition will be good for Singapore even if it’s not especially good for the firm.”

IMAGES:

Dickson

Hinkley

Adams

Riegels

Rogers

For more on this story go to: http://www.thelawyer.com/analysis/market-analysis/regions/offshore-analysis/offshore-special-singapore-focus/3027977.article