IFLR 1000
The Guide to the World's Leading Financial Law Firms

CONTEXT AND TRENDS
With the first PPP (public-private partnerships) projects to utilise the new process under the PTB (partnership Technical Bureau), which was implemented in 2008, progressing well and the major restructurings in Kuwait's investment sector near resolution, there is positive momentum in the country and a steady flow of mandates for law firms. "A lot of the new work is still the government sponsored PPP projects, that is the biggest generator of deals," says one partner....

CONTEXT AND TRENDS

With the first PPP (public-private partnerships) projects to utilise the new process under the PTB (partnership Technical Bureau), which was implemented in 2008, progressing well and the major restructurings in Kuwait's investment sector near resolution, there is positive momentum in the country and a steady flow of mandates for law firms. "A lot of the new work is still the government sponsored PPP projects, that is the biggest generator of deals," says one partner. The Ras Al Zour IWPP (independent water and power project) is the closest to being finalised. "The IWPP is almost there all the way down to contract negotiation, but I don't think the contracts have been signed just yet. I expect by the end of the year that will be closed at least with the government," explains one lawyer. Currently there are "five or six" further transactions in the pipeline under the government's $140 billion five-year programme including metro, rail and energy projects

Outside of project's restructuring work is the mainstay for firms in Kuwait. The impact of the financial crisis was most pronounced in Kuwait's dense and heavily over-leveraged investment sector and ever since the cracks began to appear in 2008 and these investment companies were unable to balance the books lawyers have had a steady flow of deals. However, while this variety of work shows no signs of abating, the most prominent cases: TID (The Investment Dar) and Global Investment House, are nearing closure. "The TID continues to generate work for lawyers because people are trading in their debt. They have split the claims into three groups A, B and C. The As were individuals, they were paid off straight away, the B claims were non financial institutions and C's were financial institutions. There's been some settlement in kind," explains one lawyer. Global Investment House is in its second restructuring which will be a more permanent solution. "The first was more an amend and extend which was insufficient. Now it's a more wholesale restructuring. They are going to give the creditors the non core assets while retaining the fee business and inviting the creditors back in to take a 70% portion of it," notes one lawyer, adding "The seed of all this was four years ago but things are still being billed so it's been a slow process. The positive development is permanent resolutions are nearing."

The demise of the investment sector has stunted activity on the financing side. "A lot of the loans we did see were in the investment company sector and that's still a sector that's not healthy in Kuwait so there's no appetite to make loans into it," say one partner.

In terms of the transactions that do make it to market it's a familiar story, Kuwait's banks have adopted the cautious approach being seen the world over and are only lending to the blue chip companies. "Some of the big established corporates are doing things, the KIPCOs, the GICs, but the smaller loans, the $100 million to corporate, we don't see a lot of, especially on the cross border side," says one lawyer, blaming "the lack of quality credit".

Difficulties in securing finance are leading local businesses to the bond market. "In the last year we've done six bond issuances. It was something that went dead in 2008 - the public money lending to Kuwaiti companies, but it's picked up now." These were the first bond issued since the Capital Markets Authority was introduced. The oldest stock exchange in Gulf, which is only second to Saudi Arabia's in term of size, was the last to introduce legislation conferring powers to an independent regulator. Kuwait's self-regulated stock exchange has been struggling with a dearth in new listings amid speculation there had been a large degree of market manipulation prior to the crisis. Attempting to assuage investors concerns and encourage people to list, a Capital Markets Authority was introduced in April 2011. The new regulators monitor everything from take-over bids to listing compliance and protection of minority shareholders. Lawyers, however remain unconvinced, seeing the new measures as more for appearances sake than to actually address the issues facing the exchange. "I don't think the affect will be very significant because as usual the main problems are being danced around. What we need in this country is proper insider dealing law and an anti-corruption similar to the UK Anti-Bribery Act," says one lawyer, further explaining: "Gentlemen of the same tribe and the same business persuasion meet once a week to talk and to exchange news and that makes it very difficult to police. It's so well established, it goes back years in Kuwaiti society. If you started introducing snoopers I don't think that would work. It seems to me that if you want to introduce transparency and stability, you need to go the whole hog, not just introduce an authority that can do everything but may do nothing."

In practice the main complaint with the CMA is that it's been very slow to get transactions over the line. "I don't want to be unkind but it was basically: 'Here's a law, go organise yourself.' The people that were hired at the CMA had a huge job - they basically had to build everything from scratch and that's a difficult thing to do. I'm not criticising the CMA but it is a slow process right now but with more experience these guys will get faster."

Lawyers say some of the issues with the CMA are indicative of a more general problems within government. "People are afraid of doing things, they are afraid of making decision. Even though we have the CMA in some respect we feel the CMA is afraid to make any decision for fear of offending the wrong person," remarks one partner. Kuwait's governement comprises a parliamentary constitutional monarchy governed by the Emir and an elected parliament has been blighted by infighting for some time, seeing 10 different cabinets and six parliamentary dissolutions since February 2006. "We're even having debates about whether the last parliament is still effective. It's been like that for so many years but it's on what a country has to go through to even out democracy," notes one partner. The latest issues arose over the last parliamentary election, which saw the opposition win in February only to be deposed in June after the election was ruled void. This constant fluctuation makes it "very hard to get a law passed or to get implemented," notes one lawyer. "We have a competition law, I think it was passed in 2007 and its still waiting for its implementation and competition board to be established. It's not that they never try it just gets bogged down."M&A has never been a particularly active area in Kuwait with most transactions being of the small to mid cap variety, but as the deals aren't dependent on leverage it has been unencumbered by the financial crisis. "M&A in Kuwait isn't bank finance driven so if someone has some cash – and it's not a poor country they still have cash – and there are opportunities, investments are made," notes one partner.