International firms are showing renewed interest in Russia with the proposed sell-off of state assets, the World Cup and the 2012 Winter Olympics generating a slew of mandates. Suzanna Ring reports on what's to come for the region's legal market

Russia is never far off the business agenda, but after a torrid couple of years it is fair to say that many Anglo Saxon firms had scaled back their efforts in the region – albeit a temporary pause rather than a ceasefire.

However, those committed to the jurisdiction witnessed a reversal of fortunes in 2010, with a successful bid for the 2018 World Cup in December rounding off a year that also saw the return of a steady deal flow, a flurry of partner moves and international law firms once again braving Russian borders with new offices.

And indeed, with the Russian Government's plans to sell off minority stakes in public assets, rising oil prices, the 2012 Winter Olympics and a promising pipeline of initial public offerings (IPOs), 2011 is shaping up to be another promising year for the region.

Market activity

In May 2010, Cleary Gottlieb Steen & Hamilton and Linklaters lined up to advise on the Russian Government's $5.5bn (£3.5bn) bond, which marked the first issuance of a new Russian Federation Eurobond since the emerging market crisis of 1998. The deal was heavily oversubscribed and signalled a return in confidence from investors in Russia's economy.

Anglo Saxon firms were also at the fore when the issuance was quickly followed by the €1.5bn (£1.3bn) merger of Russian dairy company Unimilk with the local arm of French foods conglomerate Danone. Freshfields Bruckhaus Deringer advised Danone, while White & Case advised the shareholders of Unimilk.

White & Case Russia head of corporate Eric Michailov said: "Our clients are now pretty much split 50-50 between local and foreign companies, which is a development of the last year or so. Pre-crisis, more of our clients were foreign, but during and post-crisis, we have seen this change, with Russian companies increasingly looking to invest outside of Russia."

Other international firms to secure notable instructions included Herbert Smith and Allen & Overy (A&O),which took lead roles in August on a major Russian finance deal that saw Gazprom Neft, the oil unit of Russia energy giant Gazprom, secure loans of up to $1.5bn (£958m).

Meanwhile, Hogan Lovells and Skadden Arps Slate Meagher & Flom advised on the $1.65bn (£1bn) acquisition by X5 Retail Group, the retail branch of financial-industrial conglomerate Alfa Group, of rival retail chain Kopeyka in December this year.

Commenting on the domestic deal market over the last year, Freshfields corporate finance partner Harvey Nugent (pictured) says: "This year there has been a growth in onshore transactions. Russian firms have restored faith in the economy by entering into transactions with one another. People are now in a better position to carry out transactions and are looking around at their options."

This trend has not gone unnoticed by local firms. Muranov Chernyakov & Partners managing partner Alexander Muranov agrees: "I haven't seen many investments from abroad and the growth is down to domestic businesses."

Jumping ship

Another sign of improving market confidence has seen a flurry of hiring and relocations as international law firms look to boost their numbers on the ground once more.

The most recent move came when Linklaters capital markets partner Peter Allen announced his departure to Freshfields alongside Clifford Chance (CC) senior associate Duncan Kellaway in December 2010.

In the same month, Berwin Leighton Paisner (BLP) announced that it will be relocating former finance chief Simon Allan to its Moscow arm, Goltsblat BLP. The firm also set up a dedicated Moscow tax practice in 2010 with the hire of senior lawyer Andrey Shpak from PricewaterhouseCoopers.

Goltsblat BLP managing partner Andrey Goltsblat says: "The activity of law firms in Russia is definitely in a phase of development and growth. Corporate and M&A are very active and real estate is picking up again."

CC, meanwhile, seconded partner Nick Munday to Russia in April to develop its cross-border litigation and arbitration practice. The move followed a number of departures from the firm throughout the crisis including the loss of M&A partner Andrei Dontsov to White & Case in May.

CMS Russia TMT head Maxim Boulba says: "There are grounds to believe that 2011 will be a better year for the legal market than 2009-10. Deals have started moving faster than before and there has been more recruitment."

Dewey & LeBoeuf Moscow corporate partner Brian Zimbler (pictured) added: "There has been a fair bit of lawyer movement among firms in Moscow this year. Some of this may be explained by personal circumstances, such as a lawyer wanting to move laterally for a much higher salary. Competition for talent remains fierce, and international recruiters are very active on the Russian market. If a law firm is having financial trouble, there's always a competitor looking to acquire top performers."

Despite a depressed 2009, K&L Gates entered the Russian market in January 2010 with an office in Moscow, hiring a six-lawyer team from US firm Haynes and Boone including partners Robert Langer and William Reichert.

However, firms that have not yet set up in the region may have missed their chance, according to those on the ground.

White & Case's Michailov says: "It would be extremely difficult for any firm to enter the market now. This is a highly-competitive market and unless a firm was to enter through a local tie-up I don't see how an international outfit would facilitate an opening at this point."

Pepeliaev Group dispute resolution and mediation practice head Denis Bykov concurs, and also dismisses the possibility of a local tie-up, saying: "Most Russian law firms have good partner relations with lawyers from other jurisdictions and would not look to merge with one firm, as this would limit their scope for referral work."

Positive outlook

The Russian Government proposed a sell off of $29bn (£18.6bn) in state assets in July this year as a means of reducing the country's budget deficit over the next three years, with minority stakes in around 10 state-owned companies to be put up for sale. While none of the sales have yet completed, firms are hoping that this will provide a flow of work in 2011.

Goltsblat says: "The government asset sale still has a long way to go before it will be tied up, but it will produce a very positive result for the market and will improve the corporate governance and management of corporates which belong to the state."

The current assets targeted for the sell-off include VTB Bank, oil pipeline operator Transneft, oil producer Rosneft, Sberbank and Russian Railways. There are also signs of a raft of IPOs hitting the Russian stock exchange in 2011 following a lack of listings in 2010.

Goltsblat adds: "I believe that we will see about 12 new IPOs listed next year. The success rate has not been great this year, but there is confidence that 2011 will see a new surge. Investors have been a bit starved by the crisis and are now looking to invest."

In addition, changes to the Russian civil code in 2011 will significantly affect firms, placing new regulations on the types and organisation of legal entities. Changes will include a shake-up of the rules regarding the establishment of legal entities and the liability of shareholders and members of management.

So as the market gains momentum, is there any chance that Russia will steal the limelight from its BRIC rivals such as China in 2011? CC Russia head Jan ter Haar concludes: "While we expect an increase in activity in Russia next year and a return to better times, I don't think it will put us in a competing position with China – but as we have already experienced all too well, the economy can be very unpredictable."