The rumour mill is working overtime in Bangkok. So intense is the speculation swirling around the market - about the imminent exit of firms or the impending retirement or forced return to head office of foreign law firm partners - that to an outsider reporting on it, separating fact from fiction is the biggest challenge.

The so-called "retreat" of the UK firms is the biggest talk of the town, following Freshfields' announcement earlier this year that, after a review of its Asia strategy, it would close its office in the Thai capital. Making the announcement in April, Bangkok-based partner Jeremy Jennings-Mares, who will return to London, said the withdrawal would "most likely be a gradual process", although the closure is expected to be complete by year's end. Eighty-one staff have been affected, including three partners and 22 associates.

But it's not just Freshfields that's on the way out, according to local gossip. Clifford Chance, Allen & Overy and Linklaters are also set to go, say some. Or perhaps not. "They're  leaving", declares a local lawyer, referring to one of the trio. "I've heard rumours that [a UK firm] is going to close, but others say that's not true," says another.

Despite the  rumours, Andrew Matthews says Clifford Chance is not going anywhere. The Bangkok-based partner concedes that times were tough 18 months ago when the Thai economy bottomed out and "some people did fall away". There was also the firm's much-publicised falling out with Thai partner Wirot Poonsiwan - which Matthews says was resolved a year ago and if anything has "welded us together".

This year, things are much improved. A stronger economy has meant the firm's corporate  practice in particular is "busier than ever", especially on the M&A front. Major M&A deals on which the firm has acted this year include United Overseas Bank's US$600m acquisition of the Bank of Asia, completed on 27 July, and the THB 700bn three-way merger between Thai Military Bank, DBS Thai Danu and The Industrial Finance Corp of Thailand (the firm acted for ICFT). Matthews describes the Financial Sector Master Plan - the Thai government's programme for financial sector consolidation - as the firm's "very lucky break". "Certainly on the corporate side, we've never been busier," he says. "Work volumes have doubled." Other key deals include advising Merrill Lynch on the sale of its majority interest in Thai security company Phatra Securities Co (with an IPO to follow) and Air Asia on its joint venture with Shin Corp to establish a new low-cost Thai airline. "We've had to turn work away," Matthews says.

The market for legal services in Thailand is certainly on the cusp of change, if that change hasn't already taken place. The restructuring work that came with the Asian financial crisis and made many firms fat has largely disappeared and the focus is now on corporate work - M&A, raisings and IPOs. The market is also maturing, and as local firms spread their wings, some of the international players are weighing up whether the investment needed to sustain a  viable practice in Thailand is worth the returns.

Given the work now being generated, Matthews says the timing of Freshfields' exit is unfortunate. "If anybody ever made a bad call - a call at the wrong time - [they did]," he says. "If you'd made the decision 12 to 18 months ago, then you might have thought 'yes, there are better markets to be in'. But if you'd made the decision in terms of the market now, you'd be kicking yourself." The decision also took the market by surprise. "They had a very good practice in Thailand," Matthews says of Freshfields, but adds: "It depends on what
markets you want to be in. If you want to have a wider geographical spread, then you need an equity structure that reflects the countries in which you're operating."

Certainly Freshfields' exit has been attributed in part to the firm's partner remuneration structure, with Asia-based partners having to generate London partner revenues - a difficult proposition in a market such as Thailand and undoubtedly the reason that Clifford Chance, Linklaters and Allen & Overy allow for salaried partners.

There are other factors at play, however. For the UK firms, there is much more lucrative work to be had closer to home, and remaining in Thailand means, for those firms latterly focused on restructuring, reinvesting in a corporate practice. As one Australian practitioner puts it: "Why would you give up a European client base to come to Asia?"

That's a question Linklaters may well be asking itself. The firm has a reputation among its competitors as one of the more expensive in the Thai market, but on rumours of its exit, Chris King will not be drawn. King, who retired this October as head of Linklaters' Bangkok office after a six-year stint, has handed over the reins to Wilailuk Okanurak, who was announced as the office's new national managing partner in November last year. There has been some scaling back of lawyer numbers, but King says Linklaters is still going strong in Bangkok. "Linklaters continues its success under Wilailuk's new leadership as evidenced by some of the larger matters we have worked on during the past year," King says. These include Bangkok Bank Public Company Limited's US$900m public offering and the US$422m IPO of Airports of Thailand - the first Thai privatisation in 2004 and the largest in three years.  The firm also acted on the US$524.3m project financing of the Trans Thailand-Malaysia Gas  pipeline and Gas Separation Plant Project, the first project-financed pipeline in Thailand and one of the largest infrastructure deals in the region.

With work like this, Matthews says it's unlikely Linklaters will pull out of the market. "The Linklaters name crops up more often than others [on deals]. I would be surprised [at rumours they are leaving] in the  sense that they do have a good practice here."

Allen & Overy is also surprised at rumours that it might also be exiting Thailand. The firm's Bangkok corporate group has advised on some major M&A deals this year, including Royal Dutch Shell's sale of its US$205m exploration and production assets in Thailand, Nissan Motor Co's US$200m acquisition of an additional 50% of its joint venture in Thailand and the high-profile sale of Southeast Asia's largest movie-film processing laboratory, Cinecolor Lab Co Ltd.

A&O's Bangkok managing partner Simon Makinson says the firm conducted a review of its Asia strategy in June this year and concluded that Thailand was "very much part of that". "There's no intention of A&O exiting the Thai market", Makinson says, adding that the firm did its slimming down around two years ago. "We're pretty much where we want to be." A&O currently has five partners and 29 lawyers (including two consultants) in Bangkok. Although it has built its reputation in Thailand largely on restructuring work, Makinson says the focus is now more on the corporate side of the practice. "Whereas two years ago there might have been some leads we might've chased more aggressively," Makinson says, "we're not chasing those deals as much as we would have done. The Thai privatisation work has slowed down. If we were going to do it, it was going to be a big loss leader." The firm may not be chasing work the way it used to, but Makinson says it's still busy. "I think everybody is busy at the moment," he says.

Sizing down
Kowit Somwaiya is certainly busy, building up the firm he started in April this year after leaving UK firm Herbert Smith following a disagreement over the need to reduce his team. Somwaiya took the non-contentious practice with him to LawPlus Ltd, but says he maintains an association with Herbert Smith through joint activities such as marketing and sharing of know-how.

Somwaiya is frank in his assessment of why some foreign firms are now changing tack in the Thai market. "It's fair to say ... back then in 2002, early 2003, most of the British and American firms realised that their practices here in Bangkok were maybe not turning out as they  expected," Somwaiya says. He claims his new venture is going well, although its small size - he is the only partner, working with one consultant and around four other lawyers - rules it out of contention to act on the big deals. Around 25% of the firm's revenues come from IP work, which Somwaiya says has increased "dramatically" over the last 12 months, with the balance of the practice devoted to corporate banking and securities work. Recent work includes advising Citibank NA on a THB10m loan facility to an independent power plant company, Telekom Malaysia International Sdn Bhd on investments and its telecommunications business in Thailand, and QAF Ltd on the acquisition of Gardenia Foods (Thailand) Ltd. "I was afraid at the beginning I wouldn't get any new clients," Somwaiya says, "but we have received quite a few new major instructions. I'm happy with that."

Adam Lunn of Allens Arthur Robinson, which formed a joint venture with local firm Siam  Premier in 1997, says the UK firms have become "less of a force" in the last 18 months and blames the low charge-out rates in Bangkok. "It's very difficult to command the sort of rates you can get in other parts of Asia in Bangkok," Lunn says. "We're insulated to some extent because Australian rates are not as high as US and UK firms."

Lunn says while it's not boom time for the firm - which lost well-known insolvency specialist Lampros Vassiliou in February - it's still busy. Recent work includes advising TA Orange as borrower in arranging US$1.25m in long-term credit facilities; Boeing in a series of  aircraft leasing and financing arrangements with Thai Airways, Bangkok Airways and Phuket Airlines; and DBS Thai Danu Bank and Export Finance and Insurance Corporation (Australia) on the THB 700m financing of the Aquarium Project in the Siam Paragon shopping complex, due to open in 2005. Lunn says AAR is also working on "two reasonably sized" IPOs, but capital markets work has been "dead". "Everyone's been suggesting it's going to take off for the last six to twelve months," he says. "It seems like it's starting to pick up now."

Market movement
The change in the nature of the work the market is generating - and the attitude of clients towards their legal advisers - has not gone unnoticed by practitioners such as Craig Carracher, the managing partner of Minter Ellison in Bangkok. "There's a tectonic shift in the market here," says Carracher. "There's a recognition that lawyers can add some value."

Minters is a relatively new entrant to the market, having formed an association with Thai firm Matzer McGregor - set up by former Baker & McKenzie partners Suttiphat Khamsirivatchara and Kulkanist Khamsirivatchara, and solicitor Michael Shain - in November 2000. That firm rebranded as Minters in 2001 but remained independent until October 2002, when it formally merged to become part of the Minter Ellison Legal Group. There are now four partners, three consultants and around 14 other lawyers in Minters' Bangkok office.

Carracher says Minters was clear about its strategy when it entered the market, which wasn't to compete with the UK and US firms for restructuring work. "There are hundreds of restructuring lawyers here. If we'd come in here as a finance team - we'd have had no  chance," he says, adding "the restructuring work isn't finished, but no-one's really trying to do it".

Instead, the firm has a three-year business plan that is "all about corporate work", says Carracher. "Corporate advisory work, HR, IT, outsourcing, IP - none of the big international firms really focus on [that sort of work] for international clients." Recent work for Minters includes advising Thailand's largest card issuer, Krungthai Card Public Company Limited, on an eight-year outsourcing deal with Melbourne-based credit card processor Certegy Card Services; Holcim/Siam City Cement on mergers and acquisitions in Vietnam, Sri Lanka, Bangladesh, India and Pakistan; True Corporation (formerly Telecom Asia) on the sell down of TA Orange's equity interest and True's subsequent IPO; and RS Promotion Public Company Limited, a Thai entertainment and promotions company, on its IPO on the Thai Stock Exchange.

Carracher says Minters also hopes to capitalise on "opportunity areas" such as managed funds and capital raising for property companies as well as securitisation, which he describes as a "burgeoning" area. "In three years, I expect securitisation will be part of the finance practice of big firms," he says. On Minters' own growth, Carracher says the Bangkok office has doubled its revenues over the past year but is now moving into consolidation mode. "We've gone out to the market very aggressively in the last 18 months," he says. "We recognise that we're not going to win a lot of Thai work, but that's not our target market."

Long-term players
Of the long-established players, Carracher says Baker & McKenzie stands out for "their network and their brand". Bakers has been in Thailand since 1977 and has built up a strong presence under the guidance of John Hancock. Hancock, whom Carracher says deserves "a lot of credit for the legal market that has developed in Thailand", retired from practice in  October 2003 and has assumed the dual role of honorary chairman and senior advisor at the firm. Bakers' Bangkok office is now under the stewardship of managing partner Dhiraphol  Suwanprateep, who claims the firm is maintaining its solid market position. "We look at the financial statements of other firms," says Suwanprateep, referring to the statements firms are required to file with the Treasury, "and the next firm is making around 60-70% of what we're making," he claims.

Despite his bullishness about Bakers' standing in Bangkok,  Suwanprateep concedes it's a  competitive market. "The newcomers if they want to stay here have to be very competitive in terms of pricing," he says. "You have to adapt to the local environment in order to be competitive. You can't bill at the rate of US and UK firms."

On the work front, the firm has been busy in the corporate and commercial area, including representing Thai Military Bank on its three-way merger with DBS Thai Danu Bank and the IFCT; the Mass Communication Organization of Thailand on its privatisation and IPO; and Ford Motor Company on the THB50m spin off and sale of its wholesale automotive maintenance products business. Bakers has also been active in advising on new legislation (a draft product liability law is yet to be enacted), transactional work with the conclusion of the Free Trade Agreement between Thailand and Australia, and increasingly, regulatory and lobbying work. It is also targeting securitisation as a growth area, with a view to establishing an international securitisation practice.

When it comes to competition in the market, Suwanprateep considers the departure of Freshfields as both a boon and blow. Bakers has benefited in picking up a couple of Freshfields lawyers (and is also in discussions with people from Linklaters, Suwanprateep says) but he says Freshfields' exit will impact the market. "Their pulling out will basically affect corporate finance work," Suwanprateep says, adding that the firm will be sorry to lose a competitor. "We like competition because it makes you improve. Sometimes when you dominate it's not good." On the reason for Bakers' dominance, Suwanprateep credits the firm's solid local client base. "Boutique firms can only rely on foreign clients," he says. "[Foreign firms] have to be able to invest in local practice as well. That's why A&O has survived and done well. They're not just focused on banking and finance and securities work. They have litigation and other areas."

Having a strong local client base is also a sell for White & Case. In seven years, the firm has grown in Bangkok from four to around 60 lawyers. Partner Peangpanor Boonklum says that, like Baker & McKenzie, White & Case benefits from being part of a global brand while being Thai lawyer-led. The firm, however, has gained a reputation amongst its competitors for under-cutting - one Boonklum  acknowledges, but is quick to dismiss as unfair. "We're not the cheapest," she says. "International firms are cheaper than us."

Partner Manida Zimmerman says clients come to the firm because of its reputation for handling the difficult transactions. "We don't get easy jobs," she says. "It's always complicated work that is referred to us and we have a reputation for getting things done". The firm is currently busy with capital markets, M&A, privatisation and refinancing work, including
advising four Thai banks on the THB34bn (US$830m) refinancing of TA Orange - the largest corporate debt refinancing in Thailand so far this year; the corporatisation and privatisation of the Electricity Generating Authority of Thailand (EGAT) and the Mass Communication Organization of Thailand (MCOT); and the privatisation of Thai Oil Company Limited. There is also the "human" factor that sets White & Case apart,  according to  Zimmerman. "We are not arrogant," she says. "As Thais, we are easier under pressure. We are tough but we are reasonable and nice." Also drawcards for clients, according to partner Chinnavat Chinsangaram, are the firm's cost structure and approach to service. "We have more Thai lawyers on the transaction and that's a cost saving in the structure already," he says. "We try to make sure we are cost conscious for the client. It's cost management, in a sense. We believe we are better in this [than other firms]."

Fees under pressure
Fees - and pressure on them - is an issue that crops up continually in discussions with firms in Bangkok. Carracher says he's observing a greater willingness on the part of clients, mainly corporate, to move away from capped fees, but says there's still cause for caution. "You've got to choose your clients more carefully with a market like this," Carracher says. "We made a disastrous mistake when we took on a client on a major piece of litigation on a capped fee basis. We exhausted it in the first year." Carracher says it's a question of getting your margins right. "You make money here just as you make money anywhere," he says. "I think there'll be a shift with international firms that will be weeded out. Only those that can maintain a healthy charge-out rate will remain."

Matthews agrees that, when it comes to corporate work at least, clients are less averse to receiving their legal bill. "When you're doing restructuring work, you're just trying to get money back and it's pretty thankless," Matthews says. "When you're doing M&A and capital raising and you're being competitive, they're far more positive about paying."

Cynthia Pornavalai, a partner at local firm Tilleke & Gibbins, says the days of dictating to clients on fees are gone. "Most clients ask for quotations and they expect you to stay within those quotations. Even old clients ask for quotations and sometimes fixed or capped fees," Pornavalai says. Property is one of the busiest areas for the firm at present, with the firm representing several high net worth individuals from the US and Europe on acquiring residential properties in resort areas like Phuket, Chiang Mai and Koh Samui, as well as major Asian property developers on their acquisition and development of real estate in Thailand. On the corporate side, the firm has been advising a major petroleum company on due diligence in connection with the sale of its business and a US company on the acquisition of a major chemical manufacturing company's Thai subsidiary. Tilleke & Gibbins also maintains a respected IP practice, focused largely on enforcement work for foreign clients. Pornavalai says the firm's client base is solid, but you can never take it for granted. "The realities are that the clients are more savvy," Pornavalai says. "I don't think they're ever loyal - although we find a lot staying with us."

Fee pressures aside, lawyers such as Worachai Bchicharnchitr, a founding partner of Vickery & Worachai, claim that local players have the edge in the market. He says international firms that came in on the back of restructuring work are "now finding that without a Thai client base, it's hard to sustain" and that "good connections and Thai knowledge" are critical in what is increasingly a relationship-driven market. "To succeed, you need the ABC of clients - first, second and economy class," Worachai says. "We have a big base of local and overseas clients." The firm is known for representing blue-chips from Japan and Europe on major deals, and "major players" in Thailand, according to Worachai. Property is an active area for the firm, with recent work including advising Central Patana Public Co Ltd on its acquisition of the World Trade Centre shopping centre and 60-storey office complex (yet to be completed), the development of a US$2bn property project on new Rama Road and advising the hotel chain Le Meridien on the acquisition of properties in Thailand and Cambodia.

The firm is also active in the telecommunications and media sector, representing United Broadcasting Corporation Public Company Limited, Thailand's largest pay TV operator, on negotiating concessions with the Thai government in relation to licensing requirements. According to Worachai, the market for legal services in Thailand is shrinking. "It was bigger five to six years ago, but now it's going down," he says. "The firms that will survive are firms like us ... [there is] no room left for newcomers in my belief."

But where newcomers have entered the market, they're seen as competition. Pornavalai says the market is changing as local lawyers get the confidence to go out on their own. "There are a lot of breakaway firms - they're very capable," she says. "In the past, there were very few of us around with English law capability. Now, so many have foreign degrees [and] a lot of young lawyers are bilingual. We feel we can't be too comfortable because these offshoots are really eating into our practice. They're young, they're hungry - and they go in and offer a lower price."

Maturing market
ET Hunt Talmage of long-established firm Chandler & Thong-ek Law Office - which, with eight partners and around 32 lawyers, is mid-sized by Bangkok standards - says the number of splinter firms that have emerged in recent years is a sign of a market that is maturing. "We've seen Thai lawyers that have done that [gone out and set up on their own] more than they used to," Hunt Talmage says. These firms include The Legists Ltd (launched by White and Case lawyers), Law Alliance Limited (started by a former Siam Premier and Linklaters partner), and LawPlus Ltd (Kowit Somwaiya's venture). "They're becoming more used to modern ways," Hunt Talmage says of the Thai lawyers. "It's becoming a profession."

Hunt Talmage says smaller firms may be gaining some market share, but they're mainly niche players. "Some of them enter into the market quietly - with one or two lawyers - but they don't have the critical mass to do a lot of these transactions," he says. Chandler & Thong-ek has been active this year in project finance work - including the project financing of the Trans-Thai Malaysian Pipeline - as well as M&A and corporate deals. Hunt Talmage says the firm's client base is split about half and half between foreign and domestic clients. "The good firms are all busy here," he says, while colleague Ratana Poonsombudlert says of the firm's competitors: "We see mainly the big British firms and White and Case, as well as Bakers on corporate work."

Hunt Talmage - who also scoffs at rumours of founding partner Al Chandler's impending retirement ("I don't think he's going to retire soon", Hunt Talmage says), acknowledges that it's a competitive market, particularly on fees. Relationships are also increasingly important. "If it's transactional [the deal], having a relationship gets you in the door for the beauty parade," Hunt Talmage says. "The Thai banks that we have good relationships with just keep coming back. But some are more cost conscious than others. Some project sponsors are quite creaky on fees."

Other local players such as International Legal Counsellors Thailand (formerly Russin & Vecchi) agree it's more competitive in Bangkok for law firms these days. ILCT, which  describes itself as a multi-domestic law firm, has four offices in Asia - Bangkok, Ho Chi Minh City, Taipei and Hanoi (it closed its Rangoon office earlier this year) - focused solely on Asia-related work. The firm is currently advising on a number of IPOs, but at the smaller end of the scale than in the past, says senior partner Pradit Sahachaiyunta. "It's been very quiet with respect to public offerings outside Thailand. We used to do a lot with the big names like Goldman Sachs, CSFB, Lehman Brothers ... but it's been very quiet for a year," Sahachaiyunta says.

In areas such as arbitration and infrastructure, however, the firm is very active, and is also expecting more projects work on the back of developments in Thailand's telecommunications sector, as well as continuing to do restructuring work, which accounts for around 30% of the firm's overall practice. ILCT is also advising Japanese clients on buying back original investments in Thailand that they were forced to divest during the crisis. While the firm is looking to bring in more lawyers, "it will depend on the amount of work we get," says Sahachaiyunta. The firm lost four partners earlier this year, reducing its partner numbers to 14. Sahachaiyunta says about 45 lawyers is where the firm would like to be. "We're not in a hurry to employ," Sahachaiyunta says. "I think we can manage."

Beefing up
When ILCT is ready to employ, there shouldn't a shortage of applicants. Carracher says prospective recruits to Minters approach him "every day", and a recent job advertisement saw the firm receive around 400 applications. Minters also takes lawyers on secondment from Australia and has recruited in Bangkok from firms such as White & Case and Allen & Overy. "We're only interested now in international law firms for recruits," Carracher says.

Baker & McKenzie is one international firm that is used to losing lawyers to competitors. "We are a training school," says Bakers' Suwanprateep, "because we hire a lot of new graduates and train them to be stars". But the firm is also an active hirer, picking up six lawyers in the last few months, and is still the largest firm in the market, with 29 partners, nine consultants and 65 other lawyers.

Clifford Chance is in recruitment mode as well, says Andrew Matthews, but says the firm is "very picky". There are currently five partners and around 27 lawyers in the Bangkok office - predominantly Thai. "We're really only looking for Thai lawyers - the very brightest recruits out of university," Matthews says.

Clifford Chance may well need to recruit if the current level of work continues, something Matthews expects. He says the firm's strategy in Thailand has always been a long-term one. "If you work in these economies, they change pretty rapidly. You know that there are peaks and troughs, feast and famine. You know if there's a quiet 18 months, enjoy it, because just around the corner is a busy 18 months," he says, adding with a grin: "We're feasting - approaching gorging."