Banking and finance practices have never been busier - partly because renewed economic confidence has led to a spate of new business and partly because the GFC created problems that demand their expertise, writes Michael Pollak.
|WHAT THE EXPERTS SAY|
“This represents an uptick in the overall compliance area, and the teams across our practice have been bolstered to cater for this work”
PATRICK O’GRADY, PARTNER, CORRS CHAMBERS WESTGARTH
“We’re now closer to the end of the de-leveraging cycle, and there are indicative signs of improvement, particularly in mining in light of improved commodity prices”
DAN MARJANOVIC, DEACONS PARTNER
“Sentiment appears to be running ahead of fundamentals across the board, including in the resources sector, and there are still some bumps and hurdles ahead”
GEOFF STEVENS, PARTNER,LAVAN LEGAL
The B&F sector is responding to a renewed climate of confidence as reflected in the Reserve Bank's November statement on monetary policy - which reported that "the risk aversion that was so evident earlier in the year, particularly in financial markets, has abated" - with most advanced economies growing in the September quarter.
"The general improvement in the economic data and the decline in risk aversion have seen most equity markets record strong gains over recent months," the RBA says. As B&F practitioners have noted, commercial property remains weak and, according to the RBA, "financing constraints remain a significant issue".
Spectrum of infrastructure activities
Arranging project finance for a growing number of large infrastructure deals involving public-private partnerships is a key activity at Corrs Chambers Westgarth, for the Projects team (incorporating B&F members) over the past 12 months.
Among Corrs's assignments is the Melbourne desalination project, worth $3.7 billion, in which the firm's B&F team, led by partner Patrick O'Grady, is working closely with lawyers across the firm representing the Victorian Government.
"This is one of the largest such projects anywhere in the world over the last 12 months". O'Grady says
O'Grady describes B&F as likely to be "very busy for the next 12 months", with a range of projects across the nation such as the Sydney Metro project (where Corrs is acting for one of the two shortlisted consortia), the Victorian Peninsula Link motorway (where Corrs is acting for one of the shortlisted consortia) and the Gold Coast Rapid Transit Project (where Corrs is acting for government).
"The financial pipeline for such projects is very strong, and we have a targeted strategy to focus on government-led infrastructure projects," he says.
"In anticipation of many projects coming on stream, we have recruited heavily, including two new partners in B&F."
As head of B&F, O'Grady oversees a spectrum of activities including structured property finance, asset finance, project finance and workout arrangements. His previous assignments include working with Multiplex and the Chubb group of insurance companies in implementing the bonding and financing arrangements for London's Wembley Stadium project and acting for Westpac on the financing arrangements for the Bonnyrigg social housing PPP in Sydney's west.
O'Grady describes how, in close co-operation with the firm's restructuring and insolvency partners, his team during the post-GFC recovery is heavily involved, on behalf of their bank clients, in seeking ways to reconfigure the financing arrangements for companies "before even thinking about bringing in the receivers".
In the regulatory space, much of the forthcoming work will revolve around the pending Personal Property Securities legislation, amendments to which were introduced in the House of Representatives in October.
The bill, now before the Senate, aims to install a national system of PPS law to replace what Federal Attorney-General Robert McClelland described in June as a "maze" across various jurisdictions, thereby impeding "the ability of individuals and businesses, particularly small-to-medium sized businesses, to use their property in raising capital".
Under the simplified PPS regime, lawyers will be involved in how clients' personal property is used as security for a loan.
If the bill passes the Upper House, it will, in McClelland's words, "harmonise more than 70 different pieces of Commonwealth, state and territory law, providing greater certainty to business, reducing red tape and legal disputes".
At Corrs, O'Grady's team is braced for a raft of likely regulatory reforms over the next 18 months - including the PPS reforms, federal regulation of consumer credit (involving a new comprehensive licensing regime), amendments to the ASIC Act 2001 and Trade Practices Act 1974, as well as further restrictions on margin lending under the Corporations Act 2001.
"This represents an uptick in the overall compliance area, and the teams across our practice have been bolstered to cater for this work," O'Grady says.
O'Grady, the current chairman of the Australian Surety Association, sees reforms such as the PPS as "simplifying what's a convoluted process and providing a uniform approach" and all part of a post-GFC recovery phase.
Asian banks lead the way
Another fillip to B&F has been the increased lending in Australia by Asian banks, one of the most significant of which is the syndicated $450 million loan to Telstra which was jointly arranged by the Bank of China and Bank of Tokyo-Mitsubishi UFJ (Japan's largest bank).
Deacons acted for the joint lead arrangers of this loan facility, which Deacons partner Dan Marjanovic describes as "comfortably over-subscribed in a challenging market".
"We're now closer to the end of the de-leveraging cycle, and there are indicative signs of improvement, particularly in mining in light of improved commodity prices," Marjanovic says.
Marjanovic, who specialises in project development and finance and has acted for banks, borrowers and major sponsors, warns that banks remain cautious about new clients and new projects - especially big-ticket infrastructure deals - while finance for property acquisitions is "making a comeback as the market stabilises, especially in mid-range commercial properties".
Such stabilisation, and the behaviour of bankers and borrowers, will be guided by the various pending legislative reforms, according to Marjanovic, who sees the government initiatives as "important and quite significant for the market generally, and all players will need to be aware of each change as it happens".
"We're gearing up for the flurry of reforms, as are our clients," says Marjanovic, whose activities have included financing gas-to-power project development, mining, transport infrastructure, and equipment and aircraft leasing.
His take on the situation is echoed by O'Grady, who describes a "renewed appetite" among the banks to become involved in the right deals, saying "there is now more choice as Asian banks are keen to expand their activities".
WA's mixed bag
The right deals are also subject to localised conditions. For example, the B&F team at Perth firm Lavan Legal has what it terms a "specialised focus and understanding" of the WA scene. Geoff Stevens, a partner specialising in B&F, describes a spate of work stemming from both the recovery in some sectors and a continuing downturn in others.
WA's much heralded resources sector, which took a hit alongside China's slide at the height of the GFC, is making a firm comeback, says Stevens, who points to "more optimism generally for big resource-based projects with positive flow-ons, including greater demand for labour and support services and also capital for expansion and acquisitions", but he warns of a cautiousness which wasn't always evident prior to the financial crisis.
"Sentiment appears to be running ahead of fundamentals across the board, including in the resources sector, and there are still some bumps and hurdles ahead," Stevens warns.
"Lenders remain conservative, but in the past two months there has been a re-emergence of new lending activity, mainly to existing connections. The domestic banks are still unenthusiastic about new exposures, especially ones involving the word 'refinance'."
Across WA, law firms are operating in an environment where pre-GFC lending was actively funding apartment-block developments in the Perth CBD, resulting in an oversupply which has resulted in uncertainties.
One of the most dramatic examples is the 1000-apartment Capital Square project in the heart of Perth's CBD which two years ago was touted as iconic. Despite $300 million of apartments being presold, the project has been completely scrapped and is now a hole in the ground with receivers appointed to the developer.
And whenever receivers lurk, B&F experts are at the ready to find solutions, just as they're doing with those entities reaping the benefits of the post-GFC recovery.
Locally or nationally, regardless of economic trends, banking-and finance is hard at work - whether creating dynamic new opportunities or picking up the pieces after the damage has been done.
- Michael Pollak