Capital markets practices hit by crunch, with trading put on hold as Russian Government is forced to intervene

The impact of the credit crunch finally hit the Russian legal market last week, with local leaders of international law firms admitting that they have begun to feel the effects of the turbulence in the global financial markets.

Capital markets practices are taking the biggest hit after the Russian Government was last week forced to inject $20bn (£11bn) to support the country's financial markets. aTrading on the country's stock market was halted for several days.

While this scenario has happened previously, the relative small size of the country's stock market leaves it more open to wilder fluctuations than more established markets.

The increased political tensions between Russia and the West has done little to boost the country's faltering confidence.

Significantly, despite protective moves like this and the Government's proposal of slashing oil and gas export duties, partners warned that the markets have turned, and that the months ahead will be challenging.

Constantine Lusignan-Rizhinashvili, Russia and CIS head at DLA Piper, which has just moved into a new office space in Moscow, said: "We will be bracing ourselves for a hard time. Firms big in capital markets and debt financing will suffer quite a bit. Corporate practices have been more or less stable, but I do anticipate a slowdown in acquisitory activity."

"We have the beginning of a depressed environment in Russia. There have been very few initial public offerings and the ones that were have now been suspended… Russia is not immune to the global banking crisis."

Denton Wilde Sapte Moscow and CIS head, energy partner Doran Doeh, said: "It is far too early to tell what effect it will have on law firms, but what is generally happening is that the credit crunch is finally coming to Moscow."

However, he and others used to working in Russia believe the economy is more stable now than during the last economic crisis in the country some 10 years ago.

Doeh added: "In 1998 there was a complete meltdown and nobody wanted to invest in Russia. [This time] that scenario is unlikely. The World Bank still has a positive view of the overall Russian economy, predicting over 6% growth per annum going forward – which is a lot more attractive than anything available in Western Europe."

Sergei Ostrovsky, co-head of Ashurst's Central and Eastern European practice group, added: "A few weeks ago Russia did not look volatile on the equity and capital markets. Nobody can say Russia is immune or out of sync with what is going on in global capital markets anymore."

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