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Covid-19: Asian law firms maintain optimistic outlook despite Delta outbreaks

Stephen MulrenanTuesday 21 September 2021

Despite its successful hosting of the delayed Tokyo 2020 Olympic Games, by the end of August the Covid-19 and medical situation in Japan was worse than when the Olympics began.

The Delta variant is contributing to a rapid rise in daily cases in the capital, while, within the week of 30 August to 6 September, there were over 5,200 new cases confirmed across Japan. Prime Minister Yoshihide Suga extended the state of emergency for Tokyo and other prefectures until 12 September.

Hideaki Roy Umetsu, Co-Chair of the IBA Asia Pacific Regional Forum and a partner at Mori Hamada & Matsumoto in Tokyo, says that having experienced life under such circumstances for seven of the past eight months, ‘it doesn’t feel like an emergency anymore. We are feeling normal with this working style and not having any difficulties.’

Umetsu says his firm has now completely adjusted to remote working, with only a limited number of staff still working at the office. ‘When the pandemic hit […] our economy did slow down,’ he explains. ‘Some M&A stopped and foreign transactions were suspended. But after that, the larger Japanese law firms have all been very busy on M&A activities, capital markets are quite active, there are lots of compliance issues, and litigation has come back.’

Asia’s leading law firms have mirrored the impressive performances of their international counterparts during the pandemic. ‘There was a Covid influence on cross-border work, but my impression is that we quickly went back to normal in 2020,’ says Umetsu. ‘There was no dramatic decrease in the number of deals, even cross-border deals.’

In China, a booming domestic market helped the country’s leading firms to post positive financial results even as the pandemic hit overseas work. JunHe recorded a single digit revenue growth rate for 2020, the first year in which it saw more revenue generated from advising domestic clients than foreign investors and foreign invested enterprises in China.

As the economy has already shown signs of robust recovery, the Chinese market could provide a safe harbour for overseas capital in the context of a global pandemic

Xiaojun (Warren) Hua
Managing Partner, JunHe

‘Many FDI [foreign direct investment] or ODI [outward direct investment] projects we’ve been working on are cancelled or put on hold, and most of the projects that are still in progress are moving quite slowly,’ says Xiaojun (Warren) Hua, Managing Partner at JunHe. ‘However, as the economy has already shown signs of robust recovery, the Chinese market could provide a safe harbour for overseas capital in the context of a global pandemic. We are therefore expecting that the recovery of our FDI practice will be sooner and stronger than that of our ODI practice.’

The domestic M&A surge in China has been partly fuelled by the increasingly sophisticated bankruptcy and restructuring of major conglomerates. For example, JunHe advised Liaoning Huishan Dairy on its RMB 30bn ($4.64bn) debt restructuring – a deal that involved more than 120 affiliated companies.

With the growth of China’s economy likely to be driven mostly by domestic consumption and investment, Hua says his firm has been reinforcing its teams in the fields of capital markets, including Hong Kong initial public offerings (IPOs), regulatory compliance and dispute resolution. ‘In terms of ECM [equity capital markets], the implementation of a registration system in [Shanghai’s] STAR and [Hong Kong’s] GEM markets has greatly increased the speed and efficiency of IPOs and stimulated the interest of high-tech and growing companies for listing.’

The firm handled 170 IPOs in 2020, a 295 per cent increase on the 43 IPOs recorded in 2019. The upward trend continued in the first half of 2021, when it closed 89 IPOs. The story is the same for debt capital market work, with the firm closing 137 bond issues in 2020 – up from 106 cases in 2019 – and recording 72 cases for the first six months of 2021.

As a result of Sino-US political tensions and the introduction of regulatory hurdles by the US Securities and Exchange Commission, many US listed Chinese companies are considering returning to Hong Kong while others in the process of a US listing are diverting to Hong Kong.

Cross-border investment into the Republic of Korea was badly affected when the pandemic first surfaced. However, leading firms are now busily working on M&A deals that were frozen and seeing growing interest and workflow in other areas, such as e-commerce and data privacy.

Most Korean firms grew last year at a rate of between one and ten per cent, although a small number grew by as much as 18-25 per cent. Bae Kim & Lee recorded 3.5 per cent growth in 2020, with annual revenues of KRW 350bn ($310m). ‘We have witnessed substantial growth and increased activities in online platform businesses,’ says Sky Yang, former Co-Chair of the IBA Asia Pacific Regional Forum and Managing Partner at Bae Kim & Lee.

Some Asian firms took the opportunity resulting from the pandemic to be more creative in their product and service offering to ensure they stayed relevant to their clients’ changing needs.

Mori Hamada & Matsumoto invested heavily in legal technology while fellow Japanese firm Nishimura & Asahi set up a digital transformation group that provides both legal and non-legal support for clients on a range of new technologies, data and regulations to help them undertake digital transformation.

Korean firms continue to engage with clients mostly via various technology platforms, with travel being rare. ‘Even our clients in Korea prefer to meet us by Zoom or Microsoft Teams,’ says Sun Hee Kim, Newsletter Officer of the IBA Asia Pacific Regional Forum and a partner at Yulchon, in Seoul. ‘What is interesting is that we no longer use teleconference. We have gotten used to meeting face-to-face virtually.’

While firms in Asia did implement large-scale flexible working arrangements when the pandemic first hit, few have plans to maintain such a system in the long-term. ‘We believe that face-to-face communication is not only conducive to improving a sense of belonging and team awareness among lawyers (especially young lawyers who have just entered the business), but also to the mentoring and management of lawyers by their superiors,’ says Hua.

Umetsu agrees that the training of young lawyers is a key challenge facing every law firm, and notes that his firm have always taught young lawyers through open-plan offices, but Covid-19 prevented this. ‘We are using technology to have online meetings, but this cannot replace sitting together,’ he says.

Although Japan now has a good vaccination rate, rates elsewhere in the region remain relatively low, leading to fears that the Delta variant will continue to spread. China is seeing an outbreak of the virus in some provinces, for example. However, until this starts to adversely affect deal-flow, firms in Asia remain cautiously optimistic.

Image: aslysun C / Shutterstock.com

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