© Reuters
Experimental feature

Listen to this article

Experimental feature

As Asian markets go, Bangladesh falls firmly in the “frontier” category. The country has a thriving export-oriented garment industry worth nearly $30bn a year but it is hardly a hub of sophisticated financial deals.

That, however, is starting to change, with lawyers carrying out some of the groundwork to help Bangladesh, with a population of 164m, modernise its legal infrastructure, allowing international companies and other financial investors better access its economy.

Lawyers have played critical roles in smoothing such transactions by helping Bangladeshi officials understand what it takes to secure long-term international finance and meet overseas regulatory standards.

“It requires a high degree of collaboration,” says Bill McCormack, Singapore-based Asia regional managing partner of Shearman & Sterling. He helped to lay the legal groundwork for a 414MW power plant, valued at $412m, being built in the district of Sirajganj. “You have to be very pragmatic and find solutions.”

The Sirajganj scheme is the first significant foreign power project undertaken in Bangladesh since the 1990s.


Legal documents numbering thousands of pages


Counterparties, including officials, project developer and lenders

Sembcorp of Singapore is building the plant. It has won backing from the International Finance Corporation (the World Bank’s private lending arm), CDC (part of the Department for International Development in the UK) and project financing firm Clifford Capital.

Securing the necessary agreements took years of negotiation with government agencies, including the ministries of finance and power and the central bank. Assessing potential risks to the project — including political interference, labour unrest or terrorism — for the various parties was a particular challenge.

The deal, which was concluded last year, required 50 legal documents running into thousands of pages, signed by more than 25 counterparties, including Bangladeshi officials, the project developer and lenders.

“It was the first international-style, best practices-type project that had been done in Bangladesh memory,” Mr McCormack says. “There was a lack of familiarity and a reluctance to sign this type of document but we got there in the end.” These agreements, he adds, are viewed as a template for other potential projects in Bangladesh, which is drawing renewed attention from power developers because of its rising energy needs.

“Bangladesh was fairly inactive as a market and suddenly now, with this project showing the way, it is one of the hottest locations and jurisdictions in Asia,” Mr McCormack says. “A lot of developers and banks are queueing up to participate.”

Shahwar Jamal Nizam, a partner at DFDL Bangladesh, a Bangladesh-based law firm affiliated with DFDL, has observed similar ripples from his work helping Evergreen Products Group — a maker of wigs and hair pieces — to list on the Hong Kong stock exchange. Nearly 80 per cent of Evergreen’s manufacturing capacity is located in a remote region of Bangladesh where labour is plentiful. But the listing required the owner of Evergreen in Hong Kong to disclose how its operations complied with Bangladeshi laws, which presented a challenge.

On paper, Bangladesh has complex business rules, including a requirement for a police licence to handle a chemical used in wig-making. In practice, regulators had a limited presence in the area where Evergreen was operating — with the tacit permission of local authorities but without the complete formal paperwork. Mr Nizam, who is familiar with the strict standards of an international listing, helped the company to identify all applicable local regulations and secure the documentation showing that they were compliant.

“There was a lot of due diligence,” he says. “We had to find out the requirements — what are the different licences — and literally had to help the company comply.”

Persuading some local officials to issue formal documents was a challenge. “Nobody understood what this listing was about,” he says. “They thought we were being unreasonable when we were asking all these things unnecessarily.”

The team also had to verify land records to confirm that Evergreen had clear title. “The way land records are maintained in Bangladesh is very, very old-fashioned,” Mr Nizam says. “Land records are not automated . . . It’s pretty difficult to do a full title search and get to the bottom of title ownership.”

Following the Evergreen listing, Bangladeshi companies are also looking to tap international markets for outside investment. “We can already see the results from this initial public offering,” Mr Nizam says.

Lawyers working in other frontier markets, such as Laos and Sri Lanka, also emphasise the collaborative nature of the work, especially when it comes to negotiating with governments on complex, long-term infrastructure projects.

“The truth of working in emerging markets is that their readiness to undertake these kinds of projects is very limited,” says Ian Laing, the head of Asia at Pinsent Masons, who is based in Singapore. His firm has worked with the governments of Laos, Thailand and Malaysia on a deal that will lead to hydroelectric energy being transmitted to Malaysia via Thailand, in a complex deal that required agreements between three governments.

Mr Laing has represented the state-owned China Harbour Engineering Company in its plans to develop an international financial centre on reclaimed land near the Sri Lankan city of Colombo. He says that lawyers in frontier markets must realise their goal cannot just be to drive the hardest bargain with a sitting government, only to find that the deals come under fierce attack — and are threatened with cancellation — in a backlash if the political situation changes, and rivals come to power.

“The best interest of my client isn’t necessarily the best deal I can get on a piece of paper, because when the government changes, we need to defend this stuff,” he says. “Lawyers in emerging markets have to innovate how they approach these things. You are almost a broker, with an eye to what’s fair.”

Get alerts on Sembcorp when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article