The transaction, of which Dubai-based Millennium Private Equity are the financiers, has raised financing using the joint-venture musharaka sukuk structure for north east England-based IIT.

According to Norton Rose, worldwide sukuk issuance topped US$13.7bn during the first half of the year, nearly double the amount recorded in the first half of 2009.

Farmida Bi, Norton Rose partner, said: “This is a significant step forward for sukuk and for any UK company looking for alternative forms of investment. In other jurisdictions, we’ve acted on a number of high profile sukuk, but there has been no UK corporate or sovereign sukuk to date. The result has been a potentially significant source of investment into the UK being essentially cut off.

“However, this deal proves that sukuk can work to great effect in the UK. The injection of funds will help fuel IIT’s ambitious growth plans as well as help it further develop new technologies and products.”

Millennium Private Equity was advised by the Dubai office of Herbert Smith.

The partnership will see both parties exchange expertise in the settlement of commercial disputes.

Dr Hadif Al Owais, DIAC acting director and executive committee vice chairman, said: “The partnership agreement comes in line with DIAC’s efforts in raising awareness of the importance of arbitration in settling commercial disputes amongst local, regional and international commercial circles. Arbitration is an important tool in boosting investor confidence and pulling in FDIs to the Emirate.”

Trainings on the handling of trade disputes will be held early next year.

As part of a recent strategic refocus, partners at the international law firm will be required to
spend half their time on business development and the other half on fee-earning activities.
In a bid to raise the firm’s profile in the Middle East, Taylor Wessing is also planning to develop more bespoke relationships in the region and enhance knowledge sharing through in-house training and business updates. The firm said it is also looking at expanding its Dubai office, particularly in the corporate, commercial and Islamic finance sectors, and is looking to enter into bespoke relationships with like-minded law firms in the GCC region.
Jerry Parks, Taylor Wessing partner, said: “Many firms have a network of best friends around the region, but they don’t necessarily work at those relationships. We are looking to give careful thought to those firms that we work with, and then concentrate on developing those relationships.

“We are looking at increasing levels of communications between such offices, possibly looking at seconding personnel to such offices, sharing materials and information. Basically developing the relationship beyond a name on a list.”
Going forward, Taylor Wessing said it will focus solely on real estate, IT, intellectual property, media and financial services – sectors the firm said are “key growth areas in the Middle East”.

The AED1bn transaction represents the first ever securitisation of auto loan receivables in the Middle East and is the first securitisation by ENBD.

The transaction, arranged by Citi, involves the true sale of ENBD’s auto loans to private and commercial clients in the UAE. The ultimate notes are denominated in Japanese yen and have the benefit of a guarantee, of principal repayments, from Japan Bank for International Cooperation , the international arm of Japan Finance Corporation.

Interest and principal payments under the notes will be funded solely from cashflows derived from the securitised auto loan portfolio and there will be no recourse to ENBD for any amounts due under the notes. The notes have been assigned a credit rating of Aa2 (sf) by Moody’s Investors Service.

The Clifford Chance team was led by partner Christopher Walsh. He was supported by Clifford Chance associates Gregory Man, Claire Barker, Catherine Wilson and Mark Dickinson and trainees Katherine Shaw and Charles Wakiwaka in the UAE. London-based partner Jessica Littlewood and associates Jonathan Joy and Maria Lada assisted on the transaction, along with partner Leng Fong Lai and associate Jane Son in Tokyo.

Allen & Overy, London acted as legal counsel to Citi and Allen & Overy, Tokyo acted as legal counsel to JBIC.

Walsh said: “ We congratulate ENBD, Citi and JBIC on the successful close of this ground breaking transaction. The transaction demonstrates that highly rated securitisation transactions are achievable in the UAE, and can play a valuable and cost effective role in the diversification of funding resources for entities in the UAE.”

The agreement, a memorandum of understanding, commits the DFSA and Portuguese regulator Banco de Portugal to information sharing and cooperation in the supervision of financial institutions.

Paul Koster, DFSA chief executive, said: “I am very pleased to have signed this agreement as this initiative reflects each agency’s commitment to cooperation in relation to prudential oversight and inspections of authorised institutions in Portugal and the Dubai International Financial Centre.

“Given the international nature of the Centre, the DFSA has always valued the importance of its links with and trust between supervisors and regulators.”

According to Koster, the DFSA now has a bi-lateral MoU network with more than 50 regulators, including the central banks and banking supervisors in the UK, US, France, Germany, China, Singapore, and Japan.

The MoU adopts the model for information sharing developed by the Basel Committee on Banking Supervision.

Cavet has joined the firm’s Abu Dhabi office from Simmons & Simmons office in Qatar.

DWS’ energy practice is headed by Dubai-based partner James Dallas, and supported by two other parnters, Abu Dhabi-based partner Andrew Ward and Muscat-based partner Ian McGrath.

Dallas said: “We’re very excited about Stuart’s arrival, as he brings a very broad range of skills to the practice. His addition to the team allows us to offer an even wider service in the region, where we’re working on some of the biggest projects for our local and multi-national energy clients.”

Previously, Cavet worked across the Middle East and South East Asia as in-house legal counsel at BG Group plc.

Deal values in the region declined by more than half during the first three months of the year, while the number of deals dropped 16 per cent.
According to the report, sovereign wealth funds have become more focused on investment within the region, either to provide capital to local companies or to complete infrastructure projects, “as Abu Dhabi’s Aabar Investment’s proposed acquisition of Arabtec Construction demonstrates”, said the report.
Of the 26 deals that took place in the Middle East and Africa region during the first half of the year, 11 were asset or subsidiary disposals totalling US$18.6bn, 10 were public recommended acquisitions totalling US$6.3bn, four were private M&A totalling US$1.01bn and one was taken private, totalling US$291m.
However, despite a slowdown, the index concluded that Abu Dhabi, Libya and Qatar have become more active in the M&A space, surpassing Dubai, whose sovereign wealth fund previously generated the greatest amount of outbound deals.
Andrew Ballheimer, Allen & Overy co-head of the global corporate practice and co-author of the report, said: “Overall, the MENA region is likely to continue witnessing a healthy amount of M&A activity because it is home to some of the largest sovereign wealth funds and state investment initiatives in the world, and because hydrocarbon revenues will continue to create significant opportunities.”

Zeyad Khoshaim will become the firm’s first native Saudi Arabian partner.

Johannes Bruski, A&O’s Riyadh-based corporate partner, said: “Both our domestic clients in Saudi Arabia and our international clients increasingly and quite rightly expect to work with first-class Saudi Arabian lawyers. Zeyad’s a versatile lawyer with a unique combination of Saudi law expertise, western transactional experience and client relationship skills.”

Denton Wilde and Sapte and Sonnenschein Nath & Rosenthal plan to commit further resources to the Middle East following their merger in June.
Partners from both sides approved the deal, referred to as a “combination” by co-chief executive Howard Morris. And as of September 30, DWS and SNR will emerge as SNR Denton.

“The combination is a recognition of the fact that law firms need to respond to clients’ global needs, and are limited if they cannot provide services in important markets,” Morris said.

The votes were carried out unanimously on both sides, and 156 of DWS’ 158 partners voted in favour of the merger. “Only two didn’t place a vote, but didn’t abstain”, said Morris.

The combined firm will comprise 1,400 lawyers, focusing on eight key sectors, including financial institutions and funds, energy, transport and infrastructure and telecommunications. The new firm will cover legal advice in nine jurisdictions across the Middle East, the US, Europe, Africa and the CIS, with combined experience in 25 practice areas.

SNR brings with it 16 practices, while DWS brings nine. “From a geographical perspective, there is no cross-over in offices”, said Morris.
In the Middle East, Howard said: “The combination will allow us to provide a much broader service in the region that is focused on quality. SNR Denton will be able to commit more resources to the Middle East network, with more lawyers and even more investment infrastructure.”
DWS currently has 29 partners in the Middle East, with offices in Abu Dhabi, Cairo, Doha, Dubai, Muscat and Riyadh. It also has offices in Amman and Kuwait operating in association with local sponsor firms. In May this year it opened its Bahrain and Beirut offices, with its Beirut office marking its entry in Lebanon. DWS partnered with Lebanese firm Chedid Law Offices, adding significant weight to DWS’ network.

In the same month, DWS reported an 11 per cent increase in turnover for its Middle East operation. In its results for the 2009-2010 financial year, the law firm posted a profit of US$45m, up 22 per cent from US$37m in 2008-09. The Middle East region saw turnover increase by 11 per cent, while the international network accounted for 31 per cent of the firm’s total revenue.

Hogan Lovells was the first example of a transatlantic merger of two top-30 global law firms earlier this year. Hogan & Hartson and Lovells announced their plans to merge in December last year, but officially launched as Hogan Lovells on May 1 this year. The merger created a 2,500-strong law firm across 40 offices worldwide with a combined revenue of US$1.8bn.

And in similar fashion to Hogan Lovells, the prospect of increasing penetration of the US legal market through a merger was a major motivation for DWS. “This is a transformative combination, enabling us to move on to the next stage of growth. We recognised that we had to be able to offer services in the US and that a combination with a US firm provides that coverage,” Morris said.

He added: “The reason we chose SNR was partly down to research of the US market, which identified them as a good choice. They conducted simultaneous research of the UK market, which identified us. There is a great match between the firms’ strengths, geographic footprint, culture and aspirations.”

The two firms first discussed a potential merger in June 2009. Twelve months later plans were approved and the new firm was created. For Morris, the firm is not planning on breaking new ground. It is more about creating a “powerful new organisation”. He added: “We are not planning to be all things to all people. Our aim for SNR Denton is to be the global firm of choice in our eight sectors.”

Top of Morris’ to-do list is to normalise the remuneration between firms by changing DWS’ partner compensation from a modified lockstep to a merit-based system. Doing so will “ensure a smooth transition”, Morris said. “The big challenge will be to integrate the two parts of SNR Denton as firmly and quickly as possible.”

Supporting Morris at the top will be Elliott Portnoy, SNR chairman, who also becomes co-CEO of SNR Denton. Martin Kitchen of Denton and Joseph Andrew of SNR will serve as the co-chairmen of SNR Denton.
Morris said there is strong appetite among law firms to merge. “The market is ready for this type of combination”, Morris said.

Market overview

The Saudi Arabian government has committed more than US$800bn in infrastructure and sector projects over the next five years, which, when added to other projects in the Kingdom, totals over US$1trn.

According to some economists, Saudi Arabia could grow 4.5 to six per cent this year, gradually accelerating every year for several years going forward. And while Saudi weathered the economic downturn better than most, the private non-oil sector growth is expected to be 4.5 per cent to 4.6 per cent at the end of 2010.
Oil prices are now back within the comfort zone of the government, having dropped from US$147 per barrel in August 2008, to US$34 a barrel in September 2008, then back up to around US$70 per barrel today. This strong return in oil prices has brought with it massive government surpluses, according to Brad Bourland, Jadwa Investment chief economist and managing director for property investment.
Bourland said government debt has been brought down from 120 per cent of GDP in 1998 to around 10 per cent of GDP today. “In 2008 there was a massive surplus and so as a result, government finances are very strong. Government really has eliminated most of its debt.”
However, one area that did suffer as a result of the global downturn was credit issuance. Bourland said last year’s defaults by Saad Group and Ahmad Hamad Al Gosaibi and Brothers Co left Saudi with a number of lingering effects, namely tough credit conditions.

He said lending by Saudi Commercial Bank grew by an average of 23 per cent between 2004 and 2008, and then in 2009 it contracted. “It contracted before May 2009 when we had those defaults but that only extended the trend of restricting lending to the private sector. Private sector lending shrank by one per cent in 2009, as opposed to 23 per cent growth in previous years.
“However, the first four months of 2010 shows growth so our forecast is bank lending to the private sector which will grow by 10 per cent overall this year, it’s not 23 per cent but it is a gradual recovery in credit issuance.”
Attracting foreign investment

Over the years, the KSA government has attempted to stimulate economic activity through regulatory reforms, including in some instances foreign ownership of real estate, protection against confiscation, the ability to repatriate profits and comparatively low corporate tax.
Law firm Al Tamimi said there are many reasons to invest and conduct business in KSA, such as its prolonged political stability, its strategic geographical location and low taxes and establishment costs.
Nicholas Diacos, head of Al Tamimi’s Saudi Arabia office, said: “There is an enormous amount of interest in Saudi because the economy has come through the financial crisis without skipping a beat. There is a huge infrastructure boom going on which is being funded, in part, by the government, and they have an enormous liquid reserve to do that. Plus, they have the political impetus to do it because they have got a young population, which is growing. Pull all of those things together and I think this country will keep on going ahead economically and the big projects will continue to fly.”

Imran Mufti, partner in Hogan Lovells’ associate Riyadh office, said future opportunities in the kingdom are in education and healthcare, namely as a result of Saudi’s plans to launch six economic cities by 2020. These six new industrialised cities are intended to diversify the economy and increase the per capita income.

Mufti said: “We are seeing massive opportunities going forward. In particular we are looking at two big areas at the moment, healthcare and education. There is a big policy drive by the government to really increase the knowledge base among Saudis and the way they see themselves achieving that is by investing in institutes of higher education. For example, the King Abdullah University of Science and Technology.
“We are seeing a lot of appetite from foreign investors in terms of them developing relationships with local healthcare providers to really enhance their healthcare facilities.”
However, the current legal landscape in the kingdom does not lend itself to the investment prospects highlighted.
Legal landscape

The fundamental law of KSA is shari’a. This, of course, throws up a number of challenges for investors, including the prohibition of interest and the prohibition against uncertainty, which excludes options, future and other derivatives. Other practical implications include the inability to provide a waiver in respect of future rights and lack of recognition for self-help remedies.
However, Mufti said since 2000, the Saudi authorities have recognised the need to attract foreign investment and have therefore issued a raft of legislation aimed at upgrading the legal framework in which Saudi Arabia operates.

For any foreigner doing business in Saudi, the main regulation of foreign investment is derived from the Foreign Investment Law. Additionally, the most relevant authorities for business are the Saudi Arabian Monetary Agency (SAMA), the Capital Markets Authority (CMA), the Saudi Arabian General Investment Authority (SAGIA), the Ministry of Commerce & Industry and the Department of Zakat and Income Tax.

SAGIA is responsible for licensing investment in KSA, while SAMA controls the regulation of banks, insurers and the KSA currency. The CMA is responsible for overseeing the regulations of securities and investment funds.
Diacos said in order to facilitate foreign investment, SAGIA has taken steps to streamline the licensing process. Most recently, SAQIA reduced the cost of advertising in the official gazette from SAR7,500 (US$2,000) to around SAR500 (US$133) and published a booklet on procedures and documentation requirements for various changes or amendments to licensing applications.

The CMA has also brought about a major step change for the capital markets framework in Saudi. Most recently it introduced regulations that will facilitate the electronic sale, listing, execution and settlement of bonds and sukuk. Muftis said: “It is all very well having these regulations but it will take time for them to bed-down and for foreign investors to appreciate the magnitude of the strides that the kingdom has taken.
“Over the next four of five years it is going to have another jolt and it is going to try and bring up the CMA to the next level.”
But while government is making moves to improve processes and procedures for prospective investors, Mufti said work still needs to be done.

“One of the main concerns that most foreign investors have with Saudi is that there is no formal system of reporting decisions of the courts. In addition, courts are not bound by their previous decisions. This means that it can be more difficult to predict the outcome of a case when compared to other judicial systems. The introduction of the Supreme Court in Saudi may start to allay some of those concerns.
“It is still very apparent that, although there are these regulations on the statute book, it always boils down to the way these regulations are implemented and adopted by the various government bodies or quasi-bodies they are set up to administer.”
Diacos agreed. “One of the fundamental issues, which distinguishes this jurisdiction from all the other GCC jurisdictions, is the fact that it has not got a civil code. So the fundamental law here is shair’a, the legislative framework is not comprehensive and there is not doctrine of precedent nor is there any centralised court reporting. So what it means is that more often than not you are making a decision based on shair’a and there is not a shair’a code to assist you nor is there a precedence to assist you.”
Going Forward

Regulation putting the Economic Cities Act into effect are expected within months, whereby foreigners will be permitted to own property in Saudi for the first time once the King Abdullah Economic City is built.
Also in the pipeline are a number of draft laws which have been circulating for the past couple years, including the Companies Law, a new franchise law, a new arbitration law, a shari’a code and a package of mortgage laws.

The package of five laws is before the Council of Ministers for approval, and includes the Law of Registered Mortgage, Real Estate Finance Law, Enforcement and Execution Law, Finance Companies Control Law and Financial Leasing Law. This cluster of five will pave the way for a modernised regulatory regime for finance companies, mortgage lenders and banks.

But until such laws become statute, investors will have to do their due diligence, research local regulatory requirements and sound out market appetite for their proposition, Diacos said.

References made from Al Tamimi’s ‘The Essential Business Law Guide to Saudi Arabia 2009’.