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

CONTEXT AND TRENDS
If last year the market in Luxembourg was still affected by the financial crisis, then this year the nation is just clearing the mess that came with it. "Not much activity at the end of last year," says a lawyer....

CONTEXT AND TRENDS

If last year the market in Luxembourg was still affected by the financial crisis, then this year the nation is just clearing the mess that came with it. "Not much activity at the end of last year," says a lawyer. Banking in Luxembourg has had to overcome a series of new regulations. The Basel requirements mean banks have to tighten their belts and become selective in terms of lending. Just like other European jurisdictions, there is no new money deals but bankers keep themselves busy with refinancing work. "We're accustomed to work with a lot of existing clients for refinancing; acquisition process is also in the pipeline," says another lawyer. "There are not a lot of new clients especially new deals on the money," adds the partner.

Acquisition financing is still very active in Luxembourg, especially if "banks work on refinancing with higher amounts, with some facilities already in place". Banks such as Crédit Agricole and Société Générale are examples of lenders who have been active in this area.

Another regulatory issue is FATCA (Foreign Account Tax Compliance Act) which, according to a partner, "will have a big impact on all banking institutions in Luxembourg". Coming into effect in January 2013, this new US tax legislation requires all foreign banks to disclose any assets from a US account holder to the US Internal Revenue Service. A partner worries: "Once enacted it will be quite a challenge for the entire banking sector globally". Such legislation will affect not just US citizens who live overseas but also major financial service providers such as financial intermediaries, insurance companies and investment funds. Operational challenges include the cost of putting it in place and changing IT systems. At the moment, "banks affected by that want to do things right", says a lawyer, "It's quite challenging for lawyers to provide guidance".

In capital markets, similar to neighbouring jurisdictions, Luxembourg is also experiencing a lack of activity on the equity side. There are some IPOs, such as Adecoagro on NYSE and Samsonite on the Hong Kong Stock Exchange. "Most people want to wait to see how the market is going to go," explains a lawyer. Lack of confidence from corporates and unattractive share prices are the main reason for low listings in the country. "The stock exchange is going a bit yo yo: lucky one day, very bad the next day," confirms a peer.

When the equity side of capital markets is quiet, the debt side is always active. For example, KBL's EMTN programme has successfully raised €500 million, whilst Kion Group's high- yield bond offer reached a total of €500 million. "We have seen a lot of securitisation going on and we are advising a number of them," says a peer. "We will continue to see activities. A number of issuers are active all over the world. They'll need to get cash and finance themselves," predicts another partner.

When it comes to M&A, there are mixed opinions coming from firms. While some feel the M&A market is down, others feel that it's picking up. "There's a low level of M&A transactions due to crisis and volatility of the market," says a lawyer. According to partners, banks are not lending as they used to be as they are focusing on meeting new requirements such as the Basel III.

On the other hand, partners admit they are busy assisting clients with acquisitions especially when international buyers are involved. One famous example was Delia's sale of KBC to Precision Capital, a private equity house that belongs to the Qatari Royal family. Qatar Airways also purchased a 35% stake in Cargolux International. "Luxembourg is a small market. The likelihood of M&A among Luxembourg entities is quite small. Luxembourg is already in foreign hands," confirms a partner. But lawyers won't take these sales for granted, as it is difficult for them to see the market in the next few months. "Nervousness and uncertainty restrict our clients making acquisitions due to the Eurozone crisis," says a peer, "Until a number of these uncertainties have been resolved, the first half of the year has been ok, but I wouldn't say it has been significant progress".

MAJOR LATERAL HIRES

Isabelle Lentz
From: OPF Partners
To: Ashurst (London)

RISING STARS

Elvinger Hoss & Prussen
Toinon Hoss

CONTEXT AND TRENDS
Luxembourg is facing a series of regulatory challenges. The biggest talk from last year, the adoption of UCITS IV (Undertakings for Collective Investment in Transferable Securities), continues to affect investment fund practices in the jurisdiction....

CONTEXT AND TRENDS

Luxembourg is facing a series of regulatory challenges. The biggest talk from last year, the adoption of UCITS IV (Undertakings for Collective Investment in Transferable Securities), continues to affect investment fund practices in the jurisdiction. New fund launches are there, but these are structured under the UCITS model. New funds aside, there are also transitions, conversions or upgrades of funds to the UCITS models, such as Deutsche Bank London with its transitions of funds to a UCITS IV platform and BNP Paribas on the upgrade of a range of 12 funds to UCITS IV.

Another talk is AIFMD (Alternative Investment Fund Managers Directive) which will come to force July 2013. It might have caused confusion to lawyers and clients initially. "In the beginning of this year people were trying to get to it or avoid it, so we advise clients how not to get to it," admits one partner. Now lawyers seem well prepared for the directive. "Luxembourg has already declared its willingness to adopt AIFMD as soon as possible," assures a partner. Another agrees: "Luxembourg has roughly set up 80% of the implementations, there's still a lot of concept in the directive".

With the new SIF (specialised investment fund) law (March 26 2012), it amends the old version of the law from February 2007 which includes the adoption of AIFMD and the implementation of UCITs.

Then there is FATCA (Foreign Account Tax Compliance Act), a US legislation requiring foreign banks to disclose any assets from a US account holders outside the US. "For US nationals it's not easy to open bank accounts in Luxembourg," says a peer. Bringing not only additional costs but also administrative burden, FATCA affects banking as well as investment funds, since every action of the investment fund must identify any US account or assets outside the US to the authorities. As confirmed by a partner: "We will have to identify US citizens and make the necessary reporting to authorities. Funds may try to avoid US investors".

Fund re-domiciliation still continues, although the original jurisdiction of the fund seems to have changed. "In the past six months Ireland used to be our competitor of funds," says a partner. Although this is still the case, partners notice offshore jurisdictions such as the Channel Islands have fund being re-domiciled to Luxembourg. "Luxembourg has the expertise and knowledge they need," says a fund practitioner, "other jurisdictions such as Malta, you'll see some people go over there and be disappointed about the services they provide there".

"In the next few months, Luxembourg will continue to focus on investment funds and exchange of information," confirms a peer. "Bank secrecy is dropping, we'll focus on regulatory aspects," continues the partner. Still on the "grey list" of the OECD (Organisation for Economic Co-operation and Development), Luxembourg will need to work hard to overcome these regulatory hurdles.

Some partners are also dealing with shariah-compliant funds which are fully compliant with the principles of Islam. Such funds do not invest in industries categorized as morally deficient, such as alcohol. "There's a very big attraction to turn to the Middle East investors, directly within the country," comments a partner. "Luxembourg is very much welcoming Islamic investors," adds the partner.

MAJOR LEGISLATION CHANGES

SIF Law (amends)
In effect as of March 26 2012