India's election shocks jilt red-hot capital markets; is Mayer Brown really jumping ship?
Asian Legal Business
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Hi, it's Sarah here. Nimitt is out and about in Europe surveying the legal (and food) landscape after leaving us a ringside account of Narendra Modi's election setbacks in India; We also take stock of the ebb and flow of IPO activities of PRC companies in the first half of the year; and my thoughts on the one law firm divorce that shocked us all. Write to us [email protected] and [email protected]
This time for coalition
It's business as usual in India, where its central polity is returning to a familiar coalition model of governance after a 10-year hiatus.
The Narendra Modi-led Bharatiya Janata Party's failure to win an absolute majority in India's lower house of parliament by about 30 seats was contrary to all market sentiments, which had set up the country's bourses at record positions in anticipation of a Modi blowout.
But markets crashed to a four-year low, mimicking levels seen during the first month of the pandemic-induced lockdown that shut down businesses overnight, and sent the country's labour force scrambling.
The BJP-led National Democratic Alliances underwhelming performance will temporarily cool down the red-hot capital market and M&A market in the country, say lawyers.
“The election results have been completely opposite from the exit poll predictions. Because of the high expectations, despite a decent show by the NDA, there is a negative perception. I think it will settle down. Markets may find it difficult to bounce back now in a hurry. It seems that economic environment shall stay muted for some time, and the capital markets and M&A activities (which have been in full bloom) may experience temporary slowdown for a while." - Rohit Jain , Singhania & Co. (S&Co.)
Stock markets have shown signs of recovery, with the BJP leadership cementing its pre-poll NDA alliance into a coalition government on June 9th.
But financial and legal experts say the jury is still out on whether the coalition government will be able to implement and execute policy and legislation, and maintain the current momentum India has gained in the global growth story.
“The continuity of NDA in power will help in implementation of the legal reforms initiated in the banking, energy, environment, defence and other sectors. However, the lack of absolute majority of a single party unlike last time is likely to impact the pace of reforms and policies. It may even lead to certain contentious reforms or policies being put on the back burner. In my opinion, the long-term growth projection continues to remain positive."- Anand Shrivastava , Sagus Legal
Tight domestic regulations spur overseas IPO boom
China's securities regulatory body has a new chairman, Wu Qing, who assumed office right after the Lunar New Year. Wu has emphasized that the key principles for the A-share market will remain "stability" and "tightness."
And the impact of these stringent policies is evident: only 35 companies went public on the A-share market by April, marking a year-on-year decline of over 50 per cent. Additionally, from February to May, not one single IPO application was reviewed.
"If the secondary market shows stable performance in the latter half of 2024, it could lay the groundwork for ending countercyclical adjustments, potentially restoring the original IPO rhythm to some extent."- Tan Qing, Tian Yuan Law Firm
As domestic rules tighten, interest in overseas listings has surged. In Hong Kong, the pipeline of IPOs from mainland companies has nearly doubled compared to the same period last year, with popular sectors including retail consumption, logistics and supply chain, technology and high-tech manufacturing, and medical and healthcare services.
"With the continuous tightening of A-share listing approvals, the pipeline for Hong Kong listings could improve even further." - Nan Li, Tian Yuan Law Firm , Hong Kong office
This trend extends to the U.S. as well. Wang Guanda, CEO of cross-border business consulting firm Witsus Consulting, has observed that medium and small-sized Chinese companies in consumer goods, biotech, technology, business services, and life services sectors are actively seeking U.S. listings.
With 22 filings pending CSRC approval and 46 more awaiting listing, the second half of 2024 may see a wave of U.S. listings of Chinese concept stocks.
What are your thoughts on the way forward for China's capital markets and law firms operating in this space? Email ALB China Editor Hu Yangxiaoxiao [email protected]
A divorce in disguise?
Should I stay or should I go
(SW) - Last month, the Chicago-founded firm Mayer Brown stunned the Asian legal community by announcing its divorce from Johnson Stokes & Master (JSM), its fully integrated Hong Kong partner of 15 years, and the reverberations have been felt for weeks.
The chatter even dominated breakfast events and night receptions alike during the much-touted ICCA summit in Hong Kong in early May. In particular, lawyers referenced the politically charged incident involving a now-removed statue at HKU commemorating the Tiananmen crackdown. The 2021 incident was viewed by industry insiders as the moment that Mayer Brown's plans for conquest of Greater China began to come unstuck.
Perhaps grossly misjudging whether the mythical red lines could ever be crossed in a market environment seemingly no longer prioritizing economic pragmatism, the firm's management across the Pacific was dealt the loudest wake-up call yet after state-owned and private mainland enterprises walked away.
It would've been, at the very least, a commercial ordeal for foreign-owned law firms to make inroads in a market with a reputation for crony capitalism if it risked being seen, not to mention labelled, as the enemy of government authorities.
So, it's perfectly understandable that in one of many bids to stem further bleeding from the statue fallout, it was rumored that the firm's U.S. HQ pulled the plug on its long-standing association with HKU, which dated back to the pre-merger days. Local partners demurred. The management pressed on. The rest is history, or so it seemed.
But it's worth noting that Mayer Brown's split from JSM does not mean a complete wipe-out of its Hong Kong presence, as the U.S. firm claimed to stay committed to the market in the form of a separate association with possibly another local law firm. Sources from Mayer Brown in Hong Kong also rebutted the argument that the split was primarily a result of domestic political wrangling.
The yearslong U.S.-China feud, instead, was considered a much more critical factor, according to sources. "The effect of the geopolitical tensions hasn't hit as of yet as we recently still represented TikTok in the U.S. to fight a divesture order by the Biden administration, but it is coming. When that day arrives, it'd be strategically disadvantageous for JSM to be associated with Mayer Brown," the sources said.
Be that as it may, the way forward for U.S. law firms in Greater China has yet to be addressed. As the Sino-U.S. wrangling is only expected to persist, if not escalate, past November, the core question of operability remains untouched by the dissolution of the union, especially as Mayer Brown tends to keep other offices in the region while starting afresh in Hong Kong.
"Before the split is approved - which could take the Law Society at least six to nine months from now - everyone is still expected to work in the Hong Kong office together," sources said.
"From the client perspective, the actual workflow arrangement would not be much different because JSM partners very much likely will still refer their clients to Mayer Brown partners for related cross-border matters."
Plus ?a change, plus c'est la même chose.
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