Norway International Update ' Q2 2023

• Published date: 01 September 2023
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Tax, Energy and Natural Resources, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Oil, Gas & Electricity, Government Contracts, Procurement & PPP, Sales Taxes: VAT, GST, Renewables
• Law Firm: Wiersholm
• Author: Morten Goller, Jarle Kvam and Christine Li'ker Lindberg

This update explores high level trends and legal developments across some of Norway's key business sectors that have an international impact.

Norwegian economy has during Q2 been characterized by several increases in the policy rate, a weak Norwegian krone (NOK) and significant price growth. Starting from the policy rate of 3% set in March, the rate was further increased to 3.25% in May and again to 3.75% on 22 June. Additional increases are expected during Q3.

On September 28, 2022, the Norwegian government presented a proposition for new rules on taxation of profit from natural resources. In May the tax rate on fish farming was set to 25%, down from the proposed 35%.

The Norwegian Transparency Act is a relatively new law that came into effect on 1 July 2022. The Transparency Act aims to promote businesses' respect for fundamental human rights and decent working conditions while ensuring public access to information. It imposes obligations on businesses, including the duty to provide information and carry out due diligence assessments that must be disclosed in a report. The deadline for publishing the first report was on June 30th.

Uncertainty continues to impact the M&A market in Norway. Macro-economics and markets are volatile, with interest rates continuing to rise and the level of inflation remaining high. Access to debt financing is still challenging, particularly for larger transactions, and the financing costs are increasing with increased interest rates. Consequently, real estate transactions are still at a very low level (as in most other European countries), now at a level of approx. 30% of transaction values in 2022. We have also seen political factors having an adverse impact for investments, especially for sectors hit by such new legislation such as the tax rate on fish farming and the handling of wind power tax.

The IPO market is currently quiet, with a limited number of new listings. There has been ongoing IPO activity, but few IPOs have been launched and completed. Investors are cautious, requiring pre-commitments before publicly launching an IPO. The market has seen a decline in IPOs compared to previous years, with only seven listings on Norwegian marketplaces in the first six months of 2023 (compared to 17 in the same period in 2022).

M&A and Corporate Law

Key contacts: Harald Hellebust, Jarle Kvam, Gunhild Dugstad and Svein-Helge Hanken

Uncertainty continues to impact the M&A market in Norway. Macro-economics and markets are volatile, with interest rates continuing to rise and the level of inflation remaining high. Access to debt financing is still challenging, particularly for larger transactions, and the financing costs are increasing with increased interest rates. Consequently, real estate transactions are still at a very low level (as in most other European countries), now at a level of approx. 30% of transaction values in 2022. We have also seen political factors having an adverse impact for investments, especially for sectors hit by such new legislation such as the tax rate on fish farming and the handling of wind power tax. The result has been a decline in the number of deals in the first half of 2023. Interestingly, there is also a downward trend from the first to the second quarter of 2023, with 174 deals in the first quarter to 167 in the second quarter, while historically, deal volumes have had an upward trend from the first to the second quarter.

However, deals are still being completed, particularly within certain sectors such as oil, oil service and shipping, and the number of small and medium sized deals is relatively good. Challenging markets have also led to more creativity on deal structures and risk mitigation. Joint ventures, co investments, minority investments and club deals are often used as tools for market participants wanting (or needing) to close a deal. Further, the public takeover activity is stable in terms of numbers, and increasing in terms of values: so far in 2023 at EUR 18.6 billion, up from EUR 4.8 billion in first half of 2022.

Although uncertainty in terms of macro-economics seems to continue in Q3, we also see a growing deal pipeline waiting for the conditions to improve, and investors and funds with equity waiting to be invested. Conditions can and do change quickly, particularly for some sectors. For the seafood sector we expect an increase in the activity after a finally getting some clarity on the salmon tax that was introduced in September 2022 (please see further description in section Tax and VAT below). However, both sellers and investors are cautious, and it will likely take some time and more stability before we see a real increase in transaction activity.

The Foreign Subsidies Regulation (FSR) – a game changer for M&A

On 12 January 2023, the EU Foreign Subsidies Regulation (the "FSR") entered into force. The FSR aims to address distortions in the internal market caused by foreign subsidies to create a level playing field for companies operating in the EU. Unlike state aid granted by EU Member States, which is subject to stringent EU state aid rules and in many cases approval by the European Commission ("EC"), foreign subsidies from third countries have previously escaped the EC's control. The FSR intends to close this regulatory loophole through filing requirements imposed on market participants and gives the EC a toolbox to tackle competitive advantages market participants operating in the EU obtain through foreign subsidies from non-EU Member States. The proposed information requirements in connection with the filings are extensive. The FSR regulatory regime is separate from and comes in addition to EU and national merger control/anti-trust filing regimes.

Read more in our newsletter from 17.04.2023.

The FDI screening regime and its potential impact on M&A transactions

Foreign Direct Investment Controls (FDI controls) are increasingly important for transactions in different countries. Norway's National Security Act (NSA) regulates FDI and is undergoing amendments that will expand filing requirements. Varied FDI regulations and frequent changes add complexity. Filing obligations can halt transactions and impose conditions. Thorough analysis is needed before deals, considering ownership interests and contractual terms.

In our newsletter from 17.04.2023 you can read more about NSA regulations and recommendations, along with proposed amendments.

Rules on Gender Representation in Limited Liability Companies

The government, in collaboration with the Confederation of Norwegian Enterprise (NHO) and the Norwegian Confederation of Trade Unions (LO), has developed a proposal to introduce requirements for gender composition in the boards of Norwegian medium-sized and large companies. The ministry proposes that medium-sized and large companies should have a minimum gender balance of 40 percent in their boards. The rules will be gradually implemented starting from 2024. Initially, the rules will apply to companies with over 100 million NOK in total operational and financial revenues. The rules will then be expanded annually. When the phased introduction is completed by 2028, the requirement for gender balance will apply to around 20,000 companies, including those with more than 30 employees and with over 50 million NOK in total operational and financial revenues

IPOs

Key contacts: Anne Lise E. Gryte, Simen Mejlænder, Sverre Sandvik and Tone Østensen

The IPO market in Norway is currently quiet, with a limited number of new listings. There has been ongoing IPO activity, but few IPOs have been launched and completed. Investors are cautious, requiring pre-commitments before publicly launching an IPO. The market has seen a decline in IPOs compared to previous years, with only seven listings on Norwegian marketplaces in the first six months of 2023 (compared to 17 in the same period in 2022). However, in June 2023, there were some indications of an improved IPO market in Europe, which gives reason for cautious optimism for IPOs in the remainder of 2023. With several well prepared IPOs in the pipeline, the IPO markets could be some of the firsts to benefit on more macro-economical stability. We could then see a repeat of the situation in 2020, when the IPO markets opened before the M&A market, which also lead to multiple dual-track deals.

Energy: Oil and gas

Key contacts: Jon Rabben, Sondre Dyrland, Inge Ekker Bartnes and Kjetil Stensvik

Late June the Norwegian Ministry of Petroleum and Energy approved the development of 19 new oil and gas projects. An all-time high number of new projects due to the...