December 5, 2008 1:19 PM

LETTER FROM EUROPE: A Tale of Two Emirates in the Financial Crisis

Posted by Richard Lloyd

For the aspiring global firm, a shingle in Dubai has been one of the must-haves of the last five years. This week Weil, Gotshal & Manges joined the pack, with the New York firm confirming that it had received its license to practice in the Emirate and will open its new office in January, headed by current European coordinating partner Joseph Tortorici.

But it's Dubai’s neighbor, Abu Dhabi, that has increasingly been the focus for international firms eager to win work from local corporations and sovereign wealth funds awash with petro-dollars. This year alone, Latham & Watkins, Clifford Chance, Akin Gump Strauss Hauer & Feld, Dewey & LeBoeuf, Freshfields Bruckhaus Deringer, and Ashurst have all received their licenses to practice in the Emirate. Also, on Monday Shearman & Sterling, which opened its Abu Dhabi office in 1975, announced that it was doubling its presence there.

By the second quarter of next year, Shearman will have one new lateral partner hire on the ground, another transferred from London, and an extra 12 associates in place, taking the number of fee-earners from 15 to around 30. Another partner from the Paris office will follow in mid-2009, and a real estate partner will move from London in 2010.

"We've seen a lot of work coming out of the Middle East, and we anticipate that will continue," Shearman New York partner Creighton Condon said. Recently the firm advised a group of local investors on a £3.25 billion ($4.78 billion) investment in U.K. bank Barclays and acted for the Abu Dhabi United Group on its September acquisition of English soccer club Manchester City.

Shearman is one of the few firms to have focused its Middle East practice on Abu Dhabi, although Condon points out that, from that base, it picks up work around the Gulf.

For the other firms that have piled into Dubai, recent press reports make for particularly interesting reading. Suddenly the city-state's fiscal health has been questioned, with stories in the financial press claiming that it is struggling under a burden of debt that it can't refinance.

The speculation forced Mohamed Alabbar, a member of the local ruling council and chairman of Emaar Properties, to announce at the Duabi International Financial Centre (DIFC) conference in late November that: "The Government can and will meet all its obligations going forward." Dubai's debt, he said, was $10 billion with sovereign assets of $90 billion, while its companies owed $70 billion against assets of $270 billion.

When The American Lawyer's Andrew Longstreth visited the Gulf in 2006, towards the height of the boom, Linklaters's Ewan Cameron boldly told him: "If you can't make money in Dubai, you should give up."

Today, even with the global financial crisis lapping at the shores of the Persian Gulf--property values on Dubai’s iconic Palm development are reported to have fallen 40 percent--no one is giving up just yet. But the expectation levels are clearly changing.

"Everyone is hoping that Dubai is going to make up for losses elsewhere," explained Nick Bryans, head of Ashurst's Dubai office. Such hopes may be dashed, he suggested: "It's not quite as bad [here] as in the West, but deals have slowed down." For aspiring global firms, spreading their risk to Abu Dhabi looks like an increasingly attractive proposition.

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