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CONTEXT AND TRENDS Due to the small size of the Estonian legal market it remains highly competitive, with one partner remarking: "The big firms are doing fine but there is really nothing for firms lower down the scale." Since 2011, Estonian and foreign financial institutions and companies have become more active, which has resulted in a significant increase in work across the top tiered firms....

CONTEXT AND TRENDS

Due to the small size of the Estonian legal market it remains highly competitive, with one partner remarking: "The big firms are doing fine but there is really nothing for firms lower down the scale."

Since 2011, Estonian and foreign financial institutions and companies have become more active, which has resulted in a significant increase in work across the top tiered firms. A number of abandoned projects were revived due to improved market conditions, as one partner explains: "The market has begun to reactivate. In general, the number of transactions is increasing, although the volume is not yet constantly rising and the market is rather volatile."

In banking and finance one lawyer says: "Not much has changed since the previous year. Everything is restructuring, refinancing and enforcement. There are a few international transactions underway and there has been a boost to regulatory work, relating to banking and investment funds."

In the banking sector there are a few local institutions but the big Scandinavian banks dominate the market and drive what is happening. "They are lending but only fairly conservatively. They say if the project is good enough the money is there [they will lend], but this isn't really true." Another party is more positive: "Because we are dominated by Nordic banks we have less of a problem than other countries; oil containers, seaports, retail, it's all doing well."

There has been a reported increase in corporate lending. One partner puts this down to "a steady process of cutting growth rates which has left the economy in relatively robust shape".

Capital markets work meanwhile is "still pretty dead" says one lawyer. "There have been no new IPOs and only about nine issuances in total. There are rumours of things changing but liquidity in the market is low and something needs to happen to kick start things and revive the capital markets, maybe we will see this from pension funds and local institutional money."

In the first quarter of 2012 there was a reported growth in M&A (especially in IT). However, transactions were driven by the client side and involved restructuring and refinancing, in a bid to focus on core assets. Come mid-July though lawyers began to notice that normal activity was starting to resume, with more traditional M&A visible. "Whereas previously it was all distressed work, in the last 12 months we have started to see strategic interestment and financial investors buying from PE (private equity)." The private equity market is working to a reasonable extent in terms of domestic equity. It's also a matter of fortuitous timing as activity has been on both the private equity and strategic investment side with many funds keen and some desperate to exit their investments.

There is also a fine peppering of work relating to PPP (public-private partnerships) and project finance with government-initiated projects.

Finance Estonia, an expert lobby group has been set up to propose directions for further development and new regulation and they are very active on the capital markets side. As one partner explains: "The political situation is stable and we have a fairly well developed legal system which is mature in terms of regulatory provisions that harmonise well with the EU. However debt is one of the lowest in the EU. It's actually unhealthily low and we need to redress this."

Furthermore, a joint fund between the European Investment Fund and the Baltic government has recently been established with €200 million equity in reserve. This is expected to change things in the coming months as fund managers seek to utilise the market in all the Baltic countries.

Changes to Finnish tax laws (whereby the entrepreneur doesn't have to pay tax on the company profit if it is re-invested into the company) mean UK and US companies are keen to create a holding structure in Estonia for subsidiaries. Since the start of 2012 this has really begun to take off.

In insolvency, there are a few large ongoing bankruptcy cases (for example in the fishing industry) and international companies are closing Estonian representative offices with many firms acting as liquidators.

Looking forward, one partner sums up the outlook: "We expect the market to stay on the current level or that there will be a very modest increase in the financing and related transactions. However, it is also possible that negative news from other parts of Europe may have a suppressing effect on the Estonian market."

In the legal market itself it is worth noting the formation of Nordeus, a firm formed by several attorneys all of whom spent some time at Tark Grunte Sutkiene in the past.

RISING STARS

LAWIN
Marina Tolmatshova