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REPRINTS FROM the Chinese bank on behalf of Mor- gan Stanley in setting up China’s fi rst CHINA BOUND investment banking joint venture with Beijing-based China International A CONVERSATION WITH MILBANK TWEED’S Capital Corp., or CICC. Root plans to ANTHONY ROOT buy a residence in Beijing and com- mute between Beijing and Hong Kong BY SUE-CHING JEAN CHEN IN HONG KONG when the new Beijing offi ce opens. The Deal recently spoke to him. ILBANK, TWEED, HADLEY & MC- MCLOY LLP HAS RECENTLY BEGUN The Deal: Why do you feel the need TO GET SOME BIG RETURNS ON A LONG- to set up an operation inside China? TERM BET ON CHINA. Recently, the Wall Root: All the major companies have Street law firm advised China’s second-largest gone to China in the past two years. bank, China Construction Bank, or CCB, on Deal execution is moving to China. The two investments totaling $4 billion from Bank major investment banks are moving to of America Corp. and Temasek Holdings Ltd. China. Our Hong Kong office will still BofA’s $2.5 billion contribution in June was have a Korean and a regional focus. In corporate China’s biggest-ever foreign direct the next two to five years, the main investment and the first in one of China’s big business in China will be executed out four state banks. of Beijing and Shanghai. Future growth The deal also represented a milestone in will come from China. We are setting China by being negotiated in and contracted up an office in Beijing. There will be in English. five professionals and future hires in China’s big four state-owned lenders are Beijing. We will primarily focus on ac- courting foreign strategic investors and plan- quisitions and corporate finance. If you ning initial public offerings to help revamp has gained a strong reputation in Asia in gen- focus on venture capital and inbound operations long tainted by politics and cor- eral, but less so in China—until now. multinational investment you would end up in ruption ahead of the start of fi nancial markets In 1977, Milbank was the fi rst major Wall Shanghai. People think Shanghai is China’s New liberalization in December 2006. Street law fi rm to set up shop in Hong Kong York. I think it’s the Chicago of China. There’s a That’s becoming a big payday for Milbank, and Tokyo; yet, only toward the end of this lot of business trading in Shanghai. But when it which says it has also been enlisted to assist a year will it fi nally open an offi ce on mainland comes to corporate finance, Beijing has the best foreign investor preparing to plunk down several China, in Beijing, matching rivals Shearman & of the deals. billions of dollars into other top Chinese banks. Sterling LLP, Skadden, Arps, Slate, Meagher Milbank also recently advised on what & Flom LLP and Sullivan & Cromwell LLP, What was Milbank’s role on the CNOOC would have been China’s biggest overseas in- which have in recent years descended upon bid and what were the notable aspects of the vestment: the $18.5 billion bid by CNOOC Ltd. the capital, the nerve center of China’s state- financing process? for El Segundo, Calif., energy company Unocal dominated business establishment. We represented Goldman Sachs and J.P. Corp. State-owned CNOOC last month dropped The fi rm’s Asian corporate fi nance chief, Morgan. They were providing a large portion of the bid amid political opposition in Washing- Anthony Root, and Ed Sun will head Milbank’s financing, about 40% of the total $18.5 billion, ton. Milbank’s role was adviser to CNOOC’s Beijing offi ce. Root, 52, moved to Asia in 1993 to CNOOC. It is not uncommon for investment two fi nancial advisers, Goldman, Sachs & Co. with his wife, Pamela Root, now a general banks to provide risk financing for an acquisi- and J.P. Morgan on fi nancing the deal. counsel at Goldman Sachs in New York. Root tion but it is less common in Asia. This would Milbank’s Asia team, which includes 35 at- counsels on a wide range of industries includ- have been the largest acquisition loan ever torneys in Hong Kong, Singapore, and Tokyo, ing banking, technology, infrastructure, natu- made in China. Our role was to structure the has a strong corporate focus. It advises some ral resources, power and telecommunications. loan. Halfway through the transaction, there of the region’s most active investors, includ- The China Construction Bank deal built on was a discussion about a $500 million breakup ing J.P. Morgan Partners and Farallon Capital his experience 10 years ago when as a lawyer fee for CNOOC to pay Unocal shareholders to Management LLC of San Francisco. Milbank at Davis Polk & Wardwell he negotiated with compensate the political risks. CNOOC agreed 1 THE DEAL REPRINTS REPRINTS FROM to the payment but everything happened so not just Bank of America. When they had an CCB, for one, is concerned about the im- quickly it needed to obtain a special approval understanding there would be a deal, they pact of foreign competition. Even after China from China’s SAFE [State Administration of brought us in. liberalizes in December 2006, it will still be Foreign Exchange]. Through China International Capital Corp., behind India. The Chinese banks are huge. In In the end, they obtained the approval at I was familiar with the challenges working five to seven years, they will have international the last moment. Nothing is easy in China. But with a Chinese bank. Bank of America’s chair- standards installed throughout their systems. the real issue was not with the breakup fee man and vice chairman were here. They hired The IPOs will help them to achieve interna- but with politicians in the U.S. who wanted to Cleary, Gottlieb, Steen & Hamilton [LLP] to tional standards of disclosure. block CNOOC’s bid. do diligence and negotiations for two or three Incidentally, we are advising a Chinese weeks. Everything came together very quickly. What’s your overall strategy for Asia? investor on a big real estate investment in Eu- The whole transaction took actually six weeks Our strategy in Asia has been to focus on the rope. One of the fi rst questions they asked was of active involvement. high-end premium practices on a Pan-Asian whether there were political risks. They are basis. We bring a broad understanding of busi- becoming aware of political risks involved in What changes have you seen in CCB since ness, not a particular country system. We apply overseas investment. The U.S. used to be a safe working with them 10 years ago as an adviser the same executions technique from country to haven. Now it’s risky for them to invest there. to Morgan Stanley in negotiating to become country. We are strong in the private-equity fi- its partner? nancing and private-equity acquisitions, IPOs, What were the particular challenges of the It’s a complete makeover. CCB’s manage- exits. We have 70% of our work in corporate, China Construction Bank transaction? ment has changed a good deal. There’s been and 30% in finance. All these things feed each To make business deals fit into the regula- lots of turnover. CCB is looking for technology other. We know no other firm in Asia with our tory frameworks of both countries. In particu- transfers on wealth management, credit cards private equity focus. No other firms are strong lar, the U.S. has the Bank Holding Company and a full-range of financial services.The level of in all three aspects. Act. It limits the kind of investment an Ameri- sophistication and confidence on the China side can bank can make, the amount of investment, resulted in a much faster execution in the CCB On a country basis, there is always a national how you characterize the investment, the man- deal. It took CCB only six weeks to complete the market that would represent the biggest book of ner they invest, a very complex set of rules. deal with Bank of America. By contrast, it took business. Is it China this year? There’s a cottage industry of lawyers making a year and a half to create CICC. Their execu- In the first six months of the year, we had money from it. tions, the structure of the company, across the 45% of work hours dedicated to China deals, a BofA has to be aware of the amount of board, are more institutionalized today. The level absolutely higher than before. The oth- money they can invest in another entity with- documentation used in the CCB deal is more in er 55% was Korea, India and Indonesia. Ten out consequences. line with international standards. Top manage- years ago people thought Indonesia was the Likewise in China, there are foreign own- ment at CCB was able to negotiate in English. biggest market in Asia. And the Philippines ership restrictions and other rules. We brought We provided Chinese translation but the ne- No. 2. China was very slow. In the late 1990s our regulatory partner from Washington, Win- gotiations were in the English, not the Chinese it was South Korea’s M&A and restructuring. throp Brown, in for two-and-a-half weeks. version. In the CICC deal, you could not move Since 2003, China has dominated the deal flow Milbank has had a strong regulatory practice the negotiation further without a Chinese draft.

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