It is a country that, having once been nearly ruined by the Asian financial meltdown, is today rapidly becoming a global hub for Islamic financing, far outstripping neighbours such as Indonesia (the world's most populous Muslim nation) and using a legal system inherited from the British to do so. It is a jurisdiction where the largest law firms are virtually united in their stance against the local bar council in a dispute with the central bank over the issue of foreign competition. And it is a place whose politics stand at a dangerous crossroads, characterised as they are by charges and counter charges that are simultaneously salacious and deadly serious.
Welcome to Malaysia, 2008, where the local legal industry is surviving - and in some areas thriving - despite economic and political turmoil and slowing growth rates. According to Tay Beng Chai, managing partner and head of the corporate M&A practice at Tay & Partners, economic and political shocks are being felt in some areas, while others still remain quarantined from the worst of the pain. "In the area of M&A, it's fair to say that Tay & Partners there's been a decline in the number of big transactions taking place. Lawyers are still busy, but the value of transactions have dropped", reports Tay, which is something that reflects both the shrinking pools of credit to fund large, ambitious deals and the increasingly gun-shy nature of markets smarting from the collapse of large, complex instruments which triggered the sub-prime crisis.
These impressions are confirmed by Raslan Loong chief executive partner Caesar Loong, whose medium-sized boutique firm of 21 lawyers - including five partners - has lately seen a major shift away from M&A and other transactional sort of work towards internal restructuring and insolvency deals over the past six months as economic jitters and political uncertainty take their toll on the deal market. "There'll be a lot more work in the areas of insolvency and restructuring," predicts Loong. "The economy isn't as strong as the government likes to make out, and while a lot of the economy is driven by oil and commodities, the fact is that many other sectors aren't doing that well. Certainly, Malaysia remains one of the favourite investment targets in the region, but with the political situation unclear, people are waiting to see what happens."
Not everyone remains so sanguine. Albar & Partners' managing partner Zaid Albar says that the local debt market has started to sail into the wind, in no small part thanks to populist policies of the Malaysian government. While Albar reports that his firm's commercial, banking and litigation practices remain quite busy, and that restructuring and refinancing work is on the upswing, "it's more on the private debt side that things are starting to slow down a bit, and we don't know how long that's going to last. Banks are finding it difficult to underwrite bonds. And now the private debt market has been made less attractive since the government imposed a windfall profit tax on independent power producers, or IPPs."
This extra 30% tax - which has begun to fall on palm oil plantations as well, and which Trade and Consumer Affairs Minister Datuk Shahrir describes as a measure "to ensure balanced distribution of income to deserving groups" - may be politically expedient to a government which saw five of 13 state federations fall to the opposition in last March's historic balloting, but it has thrown a monkey wrench into the cash flows upon which a number of bond issues were predicated.
Outside the deals arena, one area that remains quite active - and where a number of specialty firms are making their mark - is intellectual property. Although trademark infringements are not as common a sight in Malaysia as they are in neighbouring countries such as Indonesia, the fight against counterfeit products remains a staple of boutique intellectual property firm Wong Jin Nee & Teo, according to partner Teo Bong Kwang. "We've been working actively on the enforcement end", reports Teo, who says that his firm has been involved with companies such as mobile phone giant Nokia, denim apparel maker Levi Strauss, and the American clothing brand Abercrombie & Fitch to fight infringements of their brands and trademark. "This area remains very busy, but we're also told that in other sectors such as conveyancing, things are a lot tougher, because our economy isn't that fantastic at the moment," says Teo.
Likewise, Malaysia's push to become a biotechnology hub in the region has brought a new stream of work to lawyers such as Tay & Partners' Siewing Su, who heads up that firm's intellectual property practice. "It's definitely developing, and we're generating a lot of work as a result - IP is very resilient. We're not as badly affected as, say, the private equity and capital markets."
However, it is not all bad news for those markets. "The other observation is that on the debt side, capital markets are still quite healthy, especially when it comes to Islamic finance. These areas are less adversely affected by the problems in the Western world, principally because Asian banks, Malaysian banks and financial institutions aren't as exposed to or invested in CDOs as banks in the West - the pool of funds investing in those instruments is a different pool of money. That's the good news."
As Ronald Tan, who heads the firm's capital markets practice points out, "the Malaysian domestic market as well as the Islamic bond market is a bit like an oasis of sorts - there's still a lot of liquidity in those markets."
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