On the cusp of a possible opening to foreign competition, Korea's top law firms have come down with a bout of wanderlust. Following the lead of an outbound client base, they are setting up a growing network of offices overseas. Ben Abbott reports
* Seoul intentions
* M&A and fair trade lead practice growth
* In-house at SK Energy
Korea goes outbound
Korean culture is big on trends. Whether it's food, music, TV dramas, or technology, keeping pace with the current fad is a must. In the past decade, Korea has even seen its trends and cultural products, such as film and K-pop take root in the markets of its Asian neighbours.
And so it is with Korean law firms, who are also going outbound. The past 12 months have seen a spate of office openings from Korean firms overseas, with offices already opened or on the table in Vietnam, China, Uzbekistan, Tokyo and possibly the US or the UK.
Outbound business
Korean firms may be rushing to follow their peers in opening offices overseas, but no one would accuse firms of making that kind of jurisdictional leap without a sound business case. Firms are not just following each other; they are also following clients.
The most high-profile outbound deal of the year was Doosan Infracore's US$4.9bn acquisition of US company Bobcat, which instantly elevated the group into the top ranks of construction equipment makers worldwide. The Doosan deal was viewed as a 'watershed' in Korea, where companies have long preferred domestic deals and where Korean companies are usually the targets for foreign bidders. The outbound expansion of local companies is a burgeoning trend, and Asian and global markets have only seen the tip of the iceberg. Crossborder outbound M&A volumes almost tripled in 2007 to US$14.2bn, up from US$5bn in 2006. In terms of industry, Korean companies targeted the industrials sector most in 2007, with a drastic increase of 659% after spending US$6.5bn.
In the late 90s, the Korean economy needed bailing out after the Asian financial crisis and became the beneficiary of an in- flux of foreign investment. Now that Korean companies are stronger and cashed-up, the corporate sector is looking past expensive local assets. Companies are expanding into places such as Vietnam and the 'Stans', including Uzbekistan and Kazakhstan.
Firms have been a beneficiary of this outbound trend. Kim & Chang has become counsel to Doosan, advising on the Korean law aspects of its acquisition. Shin & Kim partners Jinwon Park and Chang Weon Rhee were retained by Fila Korea on its US$400m acquisition of parent company Fila business group (through Fila Luxembourg, the holding company of the group) and its IP rights, including domestic financing. Some of Shin & Kim's lower-profile outbound deals are indicative of the knockabout, odd-job work the market is gathering in, as well as the regions companies are heading towards. The firm has been involved in a JV between Hanwha Securities and Caspian Group of Kazakhstan, consultation for Midas Management in regard to the acquisition of a building to be developed in Dubai; consultations for Orion Group on investing in construction projects in Vietnam; and consultation for Sungshin Cement Co on the establishment of a plant, also in Vietnam.
"Since last year it's been a very outstanding trend of Korean companies," Bae Kim & Lee's Kyu Sang Chung says. "Much of the work is in heavy industry, such as shipbuilding, plant construction and heavy machinery." The firm recently advised STX group on its US$500m purchase of Aker Yards ASA, a shipbuilding company in Norway.
The trend is only just beginning, and 2008 will bring more acquisitions abroad. A prime example of the impending wave of investment is petrochemical giant SK Energy, which is yet to engage in notable acquisitions abroad. In ALB's interview with general counsel Seung-Kook Synn, Synn revealed he is building an international in-house M&A team as a result of recent efforts by the company to seek acquisition targets overseas. Cross-border transactions are likely to be imminent.
Oddball or on the ball?
Korean law firm Yoon Yang Kim Shin & Yu recently announced the imminent opening of a new office in Tashkent, Uzbekistan - its second foreign office after Tokyo. Its Japan presence is also relatively new, that office having been opened in 2007. The firm is currently finalising plans to hire local lawyers on the ground in Uzbekistan, and will also have a Korean lawyer working out of the new Tashkent office.
Ex-Soviet Tashkent seems an odd decision for the firm at first glance, but the move could see it go one-up on its local competitors. A number of other Korean firms have flagged their interest in developing business in the region. Yulchon's Sai Ree Yun says the firm is looking at options to open in Central Asia, although he did not name a location.
Senior foreign counsel Jiyul Yoo says many Korean companies are expanding into Uzbekistan and neighbouring countries to participate in construction projects, which also require financing and other legal work. "We're interested in countries in that region, including Russia," Yoo says. "Uzbekistan is a good step because it's booming right now, and we expect to enjoy the benefits of being a first-runner in the region."
Location, location
Though Uzbekistan might be the biggest geographical step for a Korean firm to date, local firms have spent the past year opening plenty of offices closer to home.
One of the big movers has been Horizon Law Group, which has managed to open two offices in 2007, one in Ho Chi Minh and the other in Shanghai. The firm's Sung-Ho Moon told ALB the firm chose Shanghai over Beijing due to its "financial centre" status. Not lost on Moon would have been the fact that the three other top-tier Korean firms in China - Lee & Ko, Shin & Kim and Bae Kim & Lee - are all based in Beijing.
Horizon Law Group's prior China-related work has comprised mostly outbound investment from Korea. One such deal was helping Daewoo Shipping establish a joint venture in China to build a shipyard valued at over US$100m. On the inbound side, the firm advised China Construction Bank when it established a branch office in Seoul. "We will just be building on our existing client base, which is mostly Korean, and hopefully we can expand to include other Asian clients," Moon told ALB at the time.
Competition from other firms in China will be strong. Bae Kim & Lee revealed to ALB that it too will open its second China office, in Shanghai, probably within the next few months. "We were the first Korean law firm with an office in Beijing, and we would like to maximise our investment and experience there," Kyu Sang Chung says. "Shanghai is one of China's biggest cities, and with so many Korean companies doing transactions there we think we should open an office." The firm expects to take on five or six attorneys in its Shanghai office during the course of the year.
Although China appears popular, Vietnam has doubtless been the favourite. Yulchon, like Horizon, opened an office in Ho Chi Minh last year, and it appears Shin & Kim will soon be joining the crowd. "We're considering an office or presence in Vietnam," Shin & Kim's senior partner Woong Soon Song reveals. "As a pilot effort, we're sending one of our senior associates to an experienced firm in Vietnam, where he can be exposed to Vietnamese matters."
Although Asia is the first step for these firms, it may be that the region will not satisfy the Korean wanderlust for very long. Bae Kim & Lee partners are already discussing the option of opening in a more developed market in the west. "My understanding is that to be a global law firm, you can't be confined to Asia. We must have a presence in Western countries and be exposed to lawyers who we compete with," Kyu Sang Chung says. The firm is looking at both London in the UK and the US as options for its expansion, and expects the office will at first provide opportunities for training lawyers in a foreign jurisdiction.
Tough times in Japan
Japanese offices have always been viewed as largely unnecessary by Korean firms, which are sitting comfortably in the same time zone and only a short flight from downtown Tokyo. Japanese clients have always been so close that firms had seen no need for an office.
However, Yoon Yang Kim Shin & Yu took the plunge last year. Its new Tokyo office hosts just one lawyer, largely devoted to servicing existing inbound and outbound business from clients in Japan. Jiyul Yoo says the firm has traditionally had a large Japanese client base. "It's a one-man office to better service clients in Japan. We don't expect a drastic increase in Japanese clients, it's a more mature market," he says. These modest expectations are well founded; frontrunner Bae Kim & Lee found the market tough to break into. The firm previously had a manned office in Tokyo, but has since scaled that back to a minimal on-the-ground presence. "Well, we weren't as successful as expected," Bae Kim & Lee's Chung says. "We are now revising our strategy, and thinking again about how to approach the market. It's an intermission."
Bucking the trend
A notable exception among top-tier firms looking further afield is long dominant local legal heavyweight Kim & Chang, which has steadfastly remained solely located in its now 600-strong headquarters in Seoul. Although its competitors are expanding their office networks in Asia, Kim & Chang plans - for the moment, at least - to stay put. "We are watching the trend carefully, and we are aware of what other firms are doing, but as of now we haven't made any change in our decision to remain in Korea; obviously we work with law firms who are the key advisors in those markets," the firm said.
Foreign firms reveal Seoul intentions
Korea's progress toward legal market liberalisation is being watched closely by domestic law firms, wary of the impact they could soon feel from inbound foreign law firms. in contrast, foreign firms are viewing developments with heightened anticipation.
The timing still remains uncertain; the Free trade agreement (FTA) with the US that will drive the reforms is still to be considered by the Us congress, and with a presidential election set for November this year, Korean lawyers doubt the FTA's passage will be speedy. Foreign law firms are optimistic, tipping a limited opening for late 2009 - 2010. Paul Hastings has even predicted it could come as soon as late 2008.
With an opening imminent, bulking up has become the insurance method of choice for local firms. Bae Kim & lee has taken on its biggest group of lawyers this year, a total of 30 from law schools and the courts, with other firms taking on similarly large batches of newly qualified lawyers. Firms are also focusing on securing lateral hires. shin & Kim has had a particularly successful year in recruiting, taking on three antitrust lawyers, including the former director of the Korean FTC from Barun law, a group of four lawyers (including two partners) from Horizon law, two ip-focused partners, and seven attorneys through a merger with smaller player Seoul Law at the end of 2007.
Rumours abound in the market about the possibility of mergers. lawyers reveal there have been ongoing discussions between firms regarding mergers, and whole groups of lawyers switching firms is becoming increasingly common. "Korea's leading firms believe the only effective way to prepare for a market opening is to make themselves bigger, and the easiest way to do that is through mergers," Kyu Sang Chung says.
Zeroing in
Foreign law firms are increasingly active in the Korean market, as the amount of cross-border and extraterritorial work out of the jurisdiction increases. Managing their Korean work out of offices in Hong Kong and Tokyo and involving lawyers from practice groups in the Us and UK, these firms are waiting impatiently for liberalisation. at present, many Korean focused lawyers are spending at least half their time based in the jurisdiction or flying back and forth from in Hong Kong and Tokyo. ALB research shows the Korean market can expect at least five - and likely more - foreign firms to open immediately after changes in legislation permit them to do so.
Orrick, Herrington & Sutcliffe, with an active Korean practice under former Debevoise & Plimpton partner Mark lee is one of these. "Korea is an important market and we will take all measures to ensure our competitiveness," lee says. the firm estimates a contingent of 10 to 15 lawyers would be the right number to base on the ground in Seoul after liberalisation. lee cautions the firm's response would depend largely on market conditions and the actions of competitors, as well as the ultimate guidelines and parameters, as yet unclear, that will govern foreign firms.
Paul, Hastings Janofsky & Walker has been the most vocal about its intentions toward the market. "We plan to be one of the first Us law firms to establish an office in Korea, and we plan to have a substantial presence," head of the firm's Korea practice Jong Han Kim told ALB. the firm would look to base eight Us-qualified, Korean-speaking attorneys from Hong Kong and the Us in Korea in the event of any market opening. Sidley Austin has also been clear about its intentions. "We would seriously consider opening an office in Korea once the market liberalises," partner Allen Kim says.
Magic circle firm Linklaters, which has five partners and 12 associates engaged in Korean work, could not confirm at this stage it would open an office. "We are watching the liberalisation process with interest," Linklaters partner sang lee told ALB. "it's difficult to plan given the lack of transparency on timing and content of any change. once that becomes clearer, and depending on the needs of our clients, we will make appropriate plans," he says.
Us player Shearman & sterling is not shy about its intentions. "We would seriously look into this possibility when the market is liberalised," a spokesman for the firm says.
Pressure to open
With this influx of firms likely to come to the market, will those who decide not to move in be able to offer a viable alternative for their clients?
"While it may be difficult to manage and grow a Korea practice as substantial and diverse as Sidley's without opening an office in Korea, once the Korean market fully liberalises, other law firms with more specialised or niche Korea practices may be able to maintain theirs from Hong Kong or Tokyo offices, as they are doing currently," Sidley Austin's Allen Kim says. "each firm, of course, would have to decide its overall Korea or east asia strategy." Paul Hastings' Jong Han Kim, however, believes it will be hard for firms remote from the market to prosper. "i think it will make it much harder for them to be seen as fully committed to the market," he says.
SK energy's general counsel Seung-Kook Synn agrees. He expects foreign firms to be on the ground developing relationships with his in-house team if they expect to win any business from Korea's largest petrochemical company.
Friend or foe?
The historically slow pace of legislative reform in regard to foreign firms can be laid at the feet of fears held by local lawyers. With the competitive global networks and high standards of western firms, Korean firms fear they will eventually eat into their client bases and revenue. But should foreign firms be viewed as competition, or as partners?
It seems foreign entrants wish to allay these fears. Sidley's Kim says the firm would seek to maintain close relationships with established Korean law firms and lawyers. "Sidley's strategy would be to complement Korean lawyers and work with them to grow the Korean legal market," Kim says. Mark Lee from Orrick outlines similar sentiments. "When the market opens up, we need to ensure local Korean lawyers don't feel threatened by international firms but view their presence as a resource," he says.
M&A and fair trade lead practice growth
Domestic Korean law firms are reaping the benefits of merger & acquisition activity and the aggressiveness of the Korean Fair trade commission (Ftc) on antitrust and fair trade matters as M&a and antitrust practice groups move up a gear.
Mergers & acquisitions
Korean M&A activity in 2007 soared by 78%, recording an all-time high of Us$73.8bn compared to Us$41.4bn in 2006, according to Thompson Financial. Deals recorded in the calendar year numbered 757, compared with a total of 749 in 2006.
The US$17bn spinoff of SK corporation's petrochemical business (SK energy) worth was the top announced Korea transaction of the year, and abolished the honour of being the largest deal in the Asia Pacific region (US$15.7bn), surpassing the acquisition of Coles by Wesfarmers and Hutchison Essar's US$12.7bn acquisition by Vodafone.
HSBC's Us$6.5bn acquisition of a 51% interest in Korea exchange Bank was the second largest M&A deal of the calendar year in Korea, with SK telecom's acquisition of a minority stake in sprint Nextel (Us$5bn) third largest.
The activity is set to continue, with a number of M&A transactions now in the pipeline. the most anticipated of these is the proposed integration of parts of Korea Development Bank with Daewoo securities, with a whopping estimated value of Us$21bn.
Other upcoming deals could involve Hyundai Engineering, Hynix semiconductor, Daewoo shipbuilding and Daewoo international.
Fair trade & antitrust
Of the top-tier firms surveyed for the ALB special report Korea, shin & Kim, Bae Kim & lee and Yoon Yang Kim shin & Yu all nominated antitrust & fair trade as their fastest growing practice area of 2007. the work is flowing through on the back of high-profile actions from the Korean FTC, as it seeks to crack down on large corporations.
One of the bigger cases has been that brought against technology group Qualcomm, with shin & Kim and Yoon Yang Kim shin & Yu both involved in the corporation's defence.
The former firm has also been involved in representing automobile manufacturer Mercedes-Benz, one of four automobile companies feeling the FTA heat.
Shin & Kim was recently successful in having a price fixing case against its client Hynix semiconductor dropped on the grounds there was insufficient evidence in the case.
The case, which was brought against four global DRAM manufacturers by the Korean FTC, exonerated Hynix from a fine of approximately Us$18m.
"This case was the first one where the KFTC stringently determined to punish, under the MRFTA, the collaborative activities made by companies in Us market, resulting in a fierce fight over the scope and extraterritorial application of anti-trust law," the firm stated.
Listings of foreign companies
Last year saw the first ever listing of a foreign company on the Korean stock exchange (KRX), with chinese audio components manufacturer 3NoD Digital Group closing its ipo in august, advised on Korean law by local firm Yoon Yang Kim Shin & Yu.
With legislation relaxed in 2005 to allow these listings, lawyers expect more will follow, with china's Huafeng Textile in the pipeline.
"There have been several attempts to do this type of project, and we are subsequently handling at least one similar deal, and at least one other deal is being considered. this will be a growing area of work," Yoon Yang Kim Shin & Yu's senior foreign legal consultant Jiyul Yoo says.
New horizons beckon for SK Energy legal team
As Korean companies go global, so inevitably do their in-house legal teams.
Since taking the role of general counsel at Korean energy giant SK Energy two years ago, Seung-Kook Synn has led an impressive international expansion of the team, which he labels a pressing imperative. Synn has established a five lawyer office in Beijing and a single-man presence in Jakarta, both key jurisdictions for SK Energy in the Asian region. Synn reveals the expansion won't stop there - he is currently putting into action plans to base legal professionals in both Vietnam and Singapore.
"SK Energy is in the process of building a global legal infrastructure," Synn says. as would be expected of Korea's leading energy company, the 25-strong corporate legal team, sitting beside a separate compliance team of an additional six lawyers, focuses on oil & gas exploration and production-related legal work, including the creation of documentation such as production contracts with regional governments and shareholder operating contracts.
In line with intended international growth, however, Synn says the in-house team's fastest growing practice area is global M&A. although the company is yet to engage in notable transactions abroad, it is actively looking for acquisition targets. "as a result, we are now setting up a global M&A taskforce inside our team," Synn says.
International growth will continue to impact the team, which is in itself international, being a mixture of Korean, American and Chinese lawyers. "The company is expanding internationally, and we will increasingly need foreign legal advice, as the company encounters compliance and regulatory issues overseas. at some point, these issues will be hard to manage from here in Seoul, and we will need to delegate legal functions overseas and receive more advice from outside counsel,' Synn says.
Legal spin-doctor
The team is no stranger to domestic M&A, with SK Corporation's restructure and spin-off of the SK Energy business last year easily the jurisdiction's largest transaction of 2007 at a value of US$17bn. Synn's previous role as head of legal at SK Corporation prior to transferring to the SK Energy business gave him a critical role in the deal, which Synn says was completed successfully with minimal legal risk.
The transaction involved the split up of SK Corporation into SK Holdings, a holding company, and SK Energy, the operating company and primary business of the group (SK Energy accounts for 90% of SK's total business, with it & telecom its other well-known business). Synn says the task involved renewing a raft of contracts with global business partners of the SK Group, and ensuring strict compliance and corporate governance.
An international market
Legal service providers in Korea are few, and Synn says despite the increasing number of graduates in the market, there is a shortage of lawyers able to handle international work. Synn says for cross-border work, SK favours engaging international firms over local firms.
"Korean firms are increasingly competent in overseas transactions, but it's difficult for them to compete with the foreign law firms," Synn says. this is especially the case since many firms have hired ethnic Koreans with the requisite language skills to work on deals.
Would this change as Korean firms establish offices in overseas jurisdictions?
"If we have business in China, the big Korean firms have offices there, but i don't think it is the time for us to hire Korean lawyers in China. it is more convenient for us to hire Chinese lawyers from a Chinese law firm," Synn says, "We also have our five-lawyer office in china with Chinese lawyers, so we can handle local issues."