29 November 2013
Legal Week publishes commentary by Serhii Sviriba on Ukrainian legal market

Lands of Eastern promise – how Central and Eastern European economies have started down the road to recovery

The financial crisis took a heavy toll on Central and Eastern European economies. But local experts are confident that a recent spate of M&A activity could revive once-flagging deal flow, reports Helen Mooney.

Despite the fact that the effects of the global financial crisis took longer to filter through to the Central and Eastern European (CEE) economic region than Western economies, the area was nevertheless badly affected. 

Some countries, including Poland, the Czech Republic and Slovakia, have proved more resilient and have weathered the crisis better than their neighbours such as Romania and Ukraine. However, it is fair to say that while the region as a whole has been fairly depressed, there are now some nascent signs of recovery. 

Deal flow has been low and according to local lawyers, a key challenge is that very few small and medium-sized companies are currently willing to list on the stock exchange. However, the recession brought with it a substantial amount of counter-cyclical work, with restructurings and insolvencies providing most of the bread-and-butter work for mid-level local firms.

Despite the financial crisis, the basic dynamics of regional investment have not changed. A large proportion of inward investment comes through Austria and Germany. And across the region are some thriving domestic law firms – often run by those who once worked for international firms – which compete by offering local knowledge and lower prices than their international rivals.


There is no denying that Romania has been stagnant economically over the past few years. "For Romania over the past year, I would characterise it as having been fairly static – there have not been a lot of very large or significant transactions," says Daniel Torsher, managing partner of the Bucharest office of Kinstellar, the independent CEE firm spun out of Linklaters in 2008.

However, Torsher believes that there is a "backlog" and pressure in the financial services sector that could see larger scale transactions reappear over the course of the next 12 months.

His colleague Bogdan Bibicu, Kinstellar's head of banking, finance and capital markets in Romania, agrees: "There has been an increased focus from international financial institutions and also from private banks recently."

Bibicu says that there are high hopes in the financial markets that the recent recruitment of Ludwik Sobolewski, the former CEO of the Warsaw Stock Exchange, as head of the Bucharest Stock Exchange will boost investments and deal flow.

Adina Chilim-Dumitriu (pictured), a partner at domestic firm Nestor Nestor Diculescu Kingston Peterson, believes that 2013 has been a better and more stable year politically in Romania, which has helped to kick-start investor interest in the region.

"Last year, there were three different prime ministers and various disputes been the Government and the President, which meant that investors decided to postpone their investments," she explains. "However, after the elections which took place at the end of 2012 and the election of a government with a parliamentary majority, there has been a change of tone and an increase in investor interest in Romania."

Chilim-Dumitriu says that there are many infrastructure projects still in the offing in Romania that should attract some key international investment: "There are infrastructure projects that the Government has announced in roads, railways, water, gas and electricity and I do not see any reason not to be optimistic about these. Romania is becoming quite an attractive country for investment and we have a good workforce at a reduced cost. This, coupled with potential projects and our geographical position, means there is interest." 

In terms of work, Government privatisations seem to be contributing their fair share, with more to come. Work on privatising state-owned companies will need to be completed under Romania's €5bn (£4.2bn) International Monetary Fund (IMF)-led loan. The deal replaced Romania's €20bn (£17bn) package from the IMF, EU and World Bank, which expired in May 2011. In terms of the legal market, the country has seen little in the way of movement since Spanish law firm Garrigues made a sharp exit at the end of 2010. In the past few years, there has been some consolidation as firms bid to safeguard their survival.

2011 saw Eversheds' tie-up with local full-service outfit Lina & Guia, and last year Mares & Asociatii hired Zamfirescu Racoti Predoiu partner Lucian Danilescu in a move that saw the firm relaunch itself as Mares Danilescu & Asociatii.

The Ukraine

The Ukrainian economy, like many of its Eastern European neighbours, has been languishing in the doldrums since the global financial crisis. However, there has been increased work of late in both litigation and tax work for domestic firms, and there are signs that the agricultural sector could offer the next big boom for the Ukrainian economy and legal market alike.

"Transactional business has declined and we have moved towards litigation – a major part of our business is in litigation now," explains Timur Bondaryev managing partner of Ukrainian firm Arzinger.

"At the moment, there are 30 major disputes involving international and local companies that are litigating against the authorities in the Ukraine. Because any major tax litigation in the Ukraine also automatically triggers criminal charges against the managers of a company, it creates a huge amount of work. As a result, we have also developed a strong white collar crime practice." 

Elsewhere, Bondaryev predicts that the Ukraine and Ukrainian lawyers will start to see a "huge increase" in agricultural work. He says that it is one of the few sectors of the economy that has been generating a lot of work for lawyers despite the financial crisis.

Estimates suggest that the country possesses about a quarter of the world's reserves of black soil, a significantly fertile resource. However, farmland remains the only major asset in the Ukraine that has not yet been privatised, hampering access by international investors. The lifting of the moratorium on the sale of farmland is expected to lead to the market being opened up to foreigners.

"Huge reform is anticipated in this area and there are plenty of international clients already coming over, setting up, and collecting land and food banks in anticipation," says Bondaryev.

In terms of the legal market, there have been no major developments in the past year. But the top domestic law firms continue to recruit and grow their ranks steadily.

Serhii Sviriba, managing partner of the Kiev office of Egorov Puginsky Afanasiev & Partners, thinks that over the past 12 months much of the work generated for Ukrainian law firms has come from cross-border litigation and from shale gas exploration. "Chevron, ExxonMobil and Shell have all come to the Ukraine recently and have generated a considerable amount of work for local and international law firms."

Sviriba predicts that the arrival of the oil giants might prompt new developments in the legal market, with the potential for the companies' international legal advisers to follow them to the Ukraine.


Though Poland has definitely felt the impact of the financial crisis, the size and relative resilience of its economy has been notable. The country represents 40% of the CEE's gross domestic product.

Besides being a key regional hub for law firms, there is considerable focus on the health of Poland's financial sector. The banking industry is viewed as having performed relatively well through the global markets turmoil, although in recent years a number of local institutions have been taken over by foreign players – a development that has been watched warily. 

Notable deals include Santander's takeover of the Polish arm of AIG. The Spanish finance company Banco Santander now holds 70% of the company, with the insurance giant taking a 30% stake.

Poland's record in weathering the global recession has obviously stood local advisers in good stead. Soltysinski Kawecki & Szlezak (SKS) Legal Advisors, Domanski Zakrzewski Palinka (DZP), and Wardynski & Partners are three key independent firms in the market.

According to Izabela Zielinska-Barlozek, an M&A partner at Wardynski, last year was seen as "a year of consolidation" in the Polish M&A market with "many corporations trying to restructure and consolidate, the banking sector was very active with many foreign banks considering exiting from the Polish market."

"M&A is still doing quite well compared to other countries in the CEE region and the second half of this year seems to be much better and investor confidence is increasing," she says.

She also says that the Polish healthcare sector has seen growing interest from foreign investors after Bupa acquired Poland's largest private healthcare provider LUX MED. 

Zielinska-Barlozek explains that while traditionally German and US investors used to be very active in the Polish market (especially in regards to infrastructure projects), new entrants, including Korean and Chinese investors, are also starting to establish themselves in Poland and are looking for investment opportunities.

Elsewhere, as with its neighbouring jurisdictions, Polish lawyers have also seen a rise in complex litigation work.

SKS managing partner Rudolf Ostrihansky says that white collar crime practices are also growing in Polish firms as its Government hones in on corporate fraud.

Helen Mooney