Lawyers bullish as China eyes the oil sands
In clunky English with a Mao-ish echo, the website of the massive Chinese state-owned oil producer Sinopec says the firm urges its workers to "Love our motherland and vitalize the petrochemical industry."
In addition to the motherland, Sinopec appears to love Canada, too. Or at least the oil sands.
The Chinese giant's recent $4.65-billion move to take a 9-per-cent stake in Syncrude Canada Ltd. is China's largest ever move into the oil sands. Earlier this month, China Investment Corp. put up $985-million for an oil sands joint venture. And Chinese firms have been snapping up mining companies for several years.
The scent of Chinese money has Canada's top law firms looking east, also, hoping for new clients. Sometimes, the scramble for Chinese business means reluctantly agreeing to steep discounts on fees, just to snag a new deep-pocketed client, lawyers say. It is also making Canadian lawyers who speak Mandarin a hot commodity.
But with little activity on the merger-and-acquisition front elsewhere at the moment, getting a jump on steering the steady flow of capital from China is a strategic must for Bay Street firms, lawyers say, just as making U.S. connections was a generation ago.
"Every firm you can name has a China strategy," said Patricia Olasker, a member of the China practice group at Davies Ward Phillips & Vineberg LLP in Toronto. "China is now, to Toronto law firms, what New York was 25 years ago. You had to have a strategy for getting business out of the U.S. Now you have to have a strategy for China. And I think everybody's guessing a little bit as to how best to do it."
Acting for Chinese companies as they scour the world for natural resources does pose some particular challenges. For one thing, some lawyers say, China is wary of any acquisition that might cause controversy.
The Chinese are eager to avoid the kind of fuss that erupted in 2005, when state-owned China Minmetals Corp. withdrew its bid for Canadian mining icon Noranda Inc. after a political outcry. That year, the U.S. government also rejected a bid by China National Offshore Oil Corp. for American oil producer Unocal on national security grounds.
This is partly why China has focused on buying minority stakes or entering joint ventures in Canada's oil sands. And it is partly why some Canadian lawyers were reluctant to talk in too much detail about their clients.
Besides sometimes needing translators and adjusting to far-flung time zones and cultural differences, some lawyers say Canadians working for Chinese firms need to be prepared for the fact that Chinese companies do not hold the legal profession in particularly high esteem.
Major Chinese companies often delay the hiring of a local lawyer until talks on an acquisition are well under way, they say. And after the deal, a difficult negotiation can follow on how much the lawyers should be paid.
"Lawyers are not very important in the Chinese business culture," one observer of the competition between high-end Canadian law firms said.
But Canadian lawyers working on these deals say their Chinese clients have become very sophisticated in the short time they have been looking abroad for investments.
David Lefebvre, of Stikeman Elliott LLP's Calgary office was the lead Canadian lawyer for Sinopec last year in its $7.5-billion purchase of Calgary-based Addax Petroleum Corp., the largest foreign takeover by a Chinese oil company. He says dealing with Chinese oil companies is now no different than dealing with American ones.
"I don't find it any different being in Beijing than I do being in Houston," he said. "Except maybe the traffic's worse."
Michael Laffin of Blake Cassels & Graydon LLP, the lead lawyer on Sinopec's deal last month to buy its Syncrude stake, dismisses concerns that the Chinese government is using its companies to grab at oil reserves, pointing out that none of the oil sands production will be shipped to China any time soon.
"This is an investment," he said. "These companies are commercial enterprises."
Joyce Lee, the Hong-Kong born, Oxford-educated, Mandarin-speaking lawyer who heads McCarthy Tétrault LLP's China team, says speaking the language is a key advantage. Often, she said, while Chinese company lawyers and officials speak English, the most senior decision maker does not.
"You have to have people who speak the language and understand the culture," she said. "At a critical time during the deal, you need access to the key guy."
The Vancouver-based Ms. Lee said while attention has been focused on the oil sands and China's massive state-owned enterprises, much of the capital looking for a home outside of China is held by more nimble private Chinese firms. And in addition to oil and minerals, future investments may be coming in technology and green energy, she said.
Her firm's game plan sounds simple: Do a good job and rely on word of mouth to attract new Chinese clients.
"They have been doing deals all over the world," she said. "They can tell good lawyers from bad lawyers."