Norway International Update – Q3 2023
This update explores some high level trends and legal developments in Q3 2023 across some of Norway's key sectors that have an international impact.
Introduction
At present, the Norwegian economy is experiencing a noticeable slowdown. Unemployment is still at a relatively low level historically. So far this year, the policy rate has been raised by 1.5 percentage points and is now at 4.25 per cent. Inflation measured by the consumer price index (CPI) has fallen after peaking in October last year and is at 3.3 per cent from September 2022 to September 2023. The factors that contributed to higher inflation have now reversed – electricity prices have fallen, the weakening of the Norwegian currency “krone” seems to have stopped, and international inflation is on the decline. This suggests that the peak of the policy rate is near, according to Statistics Norway. Despite this, Norwegian households are significantly impacted by the rising interest rates. This is largely due to the fact that most mortgages traditionally have variable interest rates, and Norwegian households have a high debt ratio in percentage terms. This has also led to a surge in bankruptcies within the construction industry, as the number of new residential projects is rapidly decreasing.
The Norwegian M&A market in Q3 2023 continues to grapple with uncertainty, with a noticeable deceleration in the number of transactions. A total of 136 deals were recorded in Q3, bringing the number of deals in 2023 per end of Q3 to 533, a decline from 567 in the equivalent period in the previous year. The overall transaction value has decreased to EUR 15,426m per end of Q3, a significant drop from EUR 33,123m during the equivalent period last year. Despite these hurdles, transactions persist across a range of sectors. The equity capital markets are also demonstrating signs of resurgence, notwithstanding an initially slow start due to macroeconomic volatility. Initial Public Offering (IPO) activity is still subdued, with only two new listings on the Euronext markets in the third quarter.
On 6 October 2023, the Government released the 2024 National Budget, with a proposed resource rent tax on onshore wind power as one of the main changes. The resource rent tax will be in addition to the ordinary corporate income tax and take effect from 1 January 2024. However, changes may occur as it is a minority government proposal.
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M&A and Corporate Law
Key contacts: Harald Hellebust, Jarle Kvam, Gunhild Dugstad and Svein-Helge Hanken
The trend from the first half of 2023 continues into Q3 in the Norwegian M&A market: uncertainty for the macro-economics and many transactions at slow speed. With 136 registered deals being made in the third quarter, the Norwegian market has per the end of Q3 2023 seen a total of 533 registered deals, compared to 567 at the same time last year. The descending trend seen from the end of the second quarter has hence continued, although not as we saw from Q1 to Q2. Looking at the deal values, the total registered deals in the Norwegian market now amounts to EUR 15,426m per end of Q3, compared to EUR 33,123m per the same period last year. The two sets of the picture for a modest Norwegian M&A market, far from the levels of previous years. With the Norwegian Central Bank signaling in September that an additional policy rate increase from 4.25 per cent to 4.50 per cent is expected within the end of the year, we could see the trend continuing for the remaining part of 2023 and into 2024.
Despite macro-economics effecting available funding and general activity levels, deals are continuing to be made across numerous sectors. Activity among listed issuers picked up, highlighted by the announced merger between PGS and TGS. The quarter saw continued activity within the public-to-private market, with the strong performance of foreign currency against the Norwegian Krone as a key-driver. The technology sector remained a high-performer, with notable transactions including the voluntary offer by a consortium led by Goldman Sachs Private Equity on Kahoot, and on Euronext Growth, Unifon’s acquisition of Nortel. Rumors of an acquisition of Adevinta by a consortium led by Permira and Blackstone also stirred the market.
Wiersholm has advised on 92 deals year-to-date, as of the end of Q3, with a total deal value of EUR 6,394m. This ranks us #2 in the M&A rankings of legal advisers in Norway by deal count, and #3 in value, according to Mergermarket.
Welcome to Nordic Buy Out Forum, December 7 2023
Key contact: Jarle Kvam
Nordic Buy Out Forum is the biggest annual M&A event in the Nordics. The event is initiated and organised by Wiersholm and supported by the Norwegian Venture Capital and Private Equity Association (NVCA).
Save the date and register for the 2023 event now.
Equity Capital MarketsKey contacts: Anne Lise E. Gryte, Simen Mejlænder, Sverre Sandvik and Tone Østensen
The third quarter in the Norwegian equity capital markets began slowly, affected by macroeconomic instability. However, signs of recovery emerged towards the end of the quarter, with inflation seeming to be stabilizing, providing a more favorable market environment. The IPO activity so far in 2023 has been low with very few IPOs and new listings, which continued into the third quarter, with only two new listings on the Euronext markets. However, the third quarter is often a slower quarter for IPOs and listings, much caused by the summer holidays. Oil and oil service are still the strongest sectors within ECM, with Beerenberg being one of the two new listings. The cautious optimism that we have seen thus far in 2023 continues, but markets are still unstable and it is challenging to predict whether the IPOs cases that are lined up for the fourth quarter will have enough investor backing to launch.
Tax
Key contacts: Nicolay Vold, Andreas Bullen and Bettina Banoun
Norwegian National Budget 2024
The Government released the 2024 National Budget (full text in Norwegian only here) on 6 October 2023. It is important to keep in mind that this is a proposal from a minority Government that will primarily go to the Socialist Left Party to secure a majority. Consequently, there may be modifications to the 2024 National Budget initially published by the Government.
- The Government proposes to abolish the high-price contribution for wind power and hydropower (excise duty on power production) effective from 1 October 2023. The temporary tax in the form of high-price contribution were justified by the special situation prevailing in Norway in 2022 and 2023, with extraordinary power sector revenues and increased expenditure in many areas. The Government believes that the extraordinary situation Norway was facing, is no longer applicable to the same extent.
- The Government has proposed introducing a legal basis for taxation of foreign companies participating in certain activities within the 200 nautical mile zone or on the Norwegian continental shelf. Activities that would be covered by the proposed taxes are: (i) “mineral activities” on the Norwegian continental shelf, (ii) exploitation of “renewable energy resources” within the 200 nautical mile zone, and (iii) “carbon management” within the 200 nautical mile zone and on the Norwegian continental shelf. The proposed rules are based on the model from the Petroleum Tax Act so that both core activities and associated activities are covered. For all activities, the Norwegian General Tax Act for tax on corporate income would apply, irrespective of whether the foreign company has a permanent establishment in Norway or not. Norway’s right to tax based on the proposed provisions may be limited in tax treaties with the foreign company’s home state. The proposed rules will have effect from and including the income year 2024.
- In the 2023 National Budget (full text in Norwegian here) the Government introduced a temporary increase in employer’s social security contributions of 5 per cent for gross salary exceeding NOK 750,000 per employee. The Government proposes to increase the threshold for the additional employer’s National Insurance contributions to NOK 850,000 in 2024. This is the first step in the phasing out of this ad hoc tax.
- The Government proposes to codify the yearlong practice under the discretionary rulings from the Ministry of Finance for tax exemptions in relation to tax-free restructurings. Three typical cases where tax exemptions have been granted under the discretionary rules are proposed to be codified, namely cross-border mergers of UCITS investment funds, mergers and divisions of savings banks where one or more savings bank foundations are created and finally conversion of merger and demerger receivables which are created under certain triangular mergers in Norway.
The Government has postponed the introduction of special tax rules applicable to private consumption in companies (often referred to as “monster tax” or “luxury tax”). The rules on private consumption in companies were originally proposed in a public consultation paper (in Norwegian only) published 9 May 2022. The aim of the proposed legislation is to stop personal shareholders from owning certain assets for private consumption through a company, typically boats, airplanes, homes and vacation homes. The Government wants to continue working on adjustments to the proposal that was sent for consultation, and announced that it will publish a refined proposal for such tax in 2024. The rules, when they are proposed, are expected to have effect from 2025.
There has been much speculation about further tightening of the Norwegian exit tax rules recently. However, no such rules were proposed in the 2024 National Budget. Further, tightening of the exit tax rules were discussed by a Tax Committee, chaired by professor Ragnar Torvik in a report published 19 December 2022 (in Norwegian only). Among other rules, it was discussed it that the exit tax would be due upon emigration, but that the tax can be deferred over seven years where 1/7 of the exit tax fall due for taxation annually. The Tax Committee pointed out that such rules may be problematic in relation to the EEA Agreement and recommends further investigations before the rules are possibly tightened further.
The Government announced that it is currently reviewing the consultation responses received from the public consultation document published 6 June 2023 on the implementation of part of the OECD Pillar Two GloBE Model Rules. The consultation document included draft legislation to introduce the Income Inclusion Rule and a Qualified Domestic Minimum Top-up tax. The Government announced that it will publish a proposal in 2023 and that the proposed rules will have effect from 1 January 2024. In the public consultation document that was published 6 June 2023, the Ministry of Finance announces that it will revert with a proposal for the Under Taxed Payment Rule at a later stage.
The Government will introduce a resource rent tax on onshore wind power starting from 2024
The Government proposes to introduce a resource rent tax on onshore wind power with an effective tax rate of 35 per cent. The resource rent tax will be in addition to the ordinary corporate income tax and take effect from 1 January 2024. More details in the dop-down below and in a separate chapter on onshore wind power.
- The proposal applies to owners of existing and new wind power plants on land in Norway.
- The resource rent tax should be limited to the part of the business that generates resource rent, i.e., the income related to the operations in the wind power plant itself.
- Resource rent tax on land-based wind power is designed as a cash flow tax, following roughly the same pattern as for hydropower, aquaculture, and petroleum operations.
- The effective tax rate will be 35 per cent, i.e. lower than the consultation proposal of 40 per cent.
- For investments made before 1 January 2024, a deduction is granted through depreciation of the input value, in addition to a compensation (deferment interest) for depreciations taking place over time. The input value is calculated in accordance with ordinary declining-balance depreciation rules for all existing wind farms.
- The value of the annual production of a wind farm shall, as a general rule, be based on spot market prices. However, an exemption from the general rule will be introduced for power purchase agreements concluded before 28 September 2022. A temporary exemption is also proposed for standard fixed-price agreements (corresponding to the exemption for hydropower), as well as for long-term physical power purchase agreements for new projects concluded during the period 2024-2030.
- Negative resource rent income will be carried forward with an interest supplement, and the tax value of any negative resource rent income will be paid to the taxpayer upon discontinuation of operations.
VAT
The most important proposals regarding VAT in the 2024 National Budget:
- The Government proposes to abolish the VAT exemption for sales and leasing of electric cars where the electricity is produced in fuel cells (hydrogen cars). The abolition will increase the costs of acquiring and leasing such vehicles for private individuals and businesses. The vehicles have limited demand in the market, and are mainly sold to business customers with the right to deduct input VAT. The Government points out that the abolition of the exemption for hydrogen cars will not affect the Parliament’s goal that all new passenger cars sold from 2025 onwards should be zero-emission vehicles. The battery-powered electric cars will contribute to meeting this goal. The amendment is proposed to take effect from January 1, 2024.
- The Government proposes a change in the VAT zero-rating for newspapers. The proposal implies that electronic newspapers can have a larger content of live images and sound. Newspapers that are covered by the VAT zero-rating must, according to the current regulations, “mainly” contain text or still images (approximately 80 per cent). This is proposed changed to a requirement for “a predominant share of text and still images” in order to be comprised by the VAT zero-rating (more than 50 per cent). However, under the proposal, the main purpose of the newspaper must still be to produce news and current affairs in the form of text or still images.
Energy: Onshore Wind Power
Key contacts: Jon Rabben and Inge Ekker Bartnes
The Norwegian government has presented a revised legislative proposal for a resource rent tax onshore wind power from January 1 2024. The proposal followed the government’s presentation of its proposed state budget for 2024 on October 6, and was based on a proposal sent for public consultation earlier this year.
The main features of the government’s proposal are that the tax is designed as a cash flow tax with immediate deduction for investment costs. The effective tax rate is set at 35 per cent, which is lower than the consultation proposal of 40 per cent.
Further, deductions are given through depreciation of the entry value for investments made before January 1, 2024, in addition to compensation for the fact that the depreciations come over time. The entry value is calculated according to ordinary balance depreciation rules for all existing wind power plants. The value of the power plant’s annual production should as a main rule be based on spot market prices. However, an exception to the main rule is introduced for power agreements entered before September 28, 2022. A temporary exception is also proposed for standard fixed price agreements (similar to the exception for hydropower) in addition to long-term, physical power purchase agreements for new projects entered into in the years 2024-2030. Lastly, negative resource rent income is carried forward with interest, and when the business ceases, the tax value of negative resource rent income will be paid out.
Feedback from the industry is that the revised legislative proposal is a step in the right direction compared to the original consultation proposal, but that there is still no basis for any resource rent on onshore wind power. This is because there is no extraordinary profit in wind power, as opposed to oil and gas, hydropower, and aquaculture. The government seems to acknowledge this in the revised legislative proposal, where they refer to a report from KPMG attached to the consultation response from Renewables Norway. The report shows that 7 out of 8 reviewed wind power projects have a return below the average annual return on the Oslo Stock Exchange in the period 2012 to 2022. Despite this, the government places decisive emphasis on the fact that onshore wind power is assumed to be among the economically most reasonable sources of new power production, so that prospects for achieved prices and costs suggest that there can be expected resource rent in onshore wind power. However, the price prospects and time horizon that the government bases this on are not specified.
The next step in the process is that the proposal will be processed in the committees of the Parliament before it will be voted upon by the Parliament. It remains to be seen whether the sitting minority government will need to make amendments to the proposal in order to reach a majority, as was the case when the resource rent tax for aquaculture was passed earlier this year.
Energy: High-price contribution proposed to be abolished
Key contacts: Jon Rabben and Inge Ekker Bartnes
In the state budget for 2024, the Norwegian government proposes to abolish the high-price contribution effective from October 1, 2023. The high-price contribution was introduced with the state budget last year, as a temporary measure adapted to the extraordinarily high electricity prices at that time. It involved an increased taxation of power producers by requiring that 23 per cent of the income over 70 cents/kWh be paid in as tax.
It is not completely unexpected that the government proposes to abolish the high-price contribution as early as October 1 this year. After all, the month of September had the cheapest electricity price ever in some price areas, based on an average calculation. At the same time, lower electricity prices are expected in the future, compared to last year. The abolition provides an incentive for increased investments in renewable energy in the form of increased profitability for new projects, but also for reinvestments in existing facilities. This is likely to have a positive impact particularly for hydropower, where there has been an increasing need for maintenance and effect upgrade projects to produce more effect capacity. This need has been particularly evident when it is cold and calm, and the wind farms are not producing power.
Statkraft is one of several power producers now announcing increased investments. They will double the investments in hydropower from 2 to 4 billion NOK towards 2030. They estimate that this will constitute a volume of 1.5-2.5 GW effect and 300-600 GWh of new energy. However, the proposal requires a positive decision from the Parliament in December before it can be implemented.
Energy: Three new offshore wind areas for 2025
Key contacts: Jon Rabben, Sondre Dyrland, Inge Ekker Bartnes and Kjetil Stensvik
Three new offshore wind areas are being considered for announcement and opening in 2025. In April 2023, an expert group led by The Norwegian Water Resources and Energy Directorate (NVE) identified 20 new areas that could be suitable for offshore wind development. In this context, the expert group presented a proposal for an impact assessment program for Vestavind F and Sørvest F, suggesting that these areas should be considered for possible announcement in 2025. In addition, the expert group presented a collective proposal for impact assessment programs for the remaining 18 areas that could be considered for announcement by 2040. Subsequently, these impact assessment programs were sent for public consultation.
In September 2023, The Norwegian government established an impact assessment program for all 20 areas, and decided that the areas Vestavind B, Vestavind F and Sørvest F should be separated into a strategical impact assessment for possible announcement in 2025. The government has followed the expert group’s recommendation, but in addition decided that Vestavind B should also be considered for possible announcement in 2025.
The Sørvest F area is an extension of Sørlige Nordsjø II, while Vestavind F is an extension of Utsira Nord (both currently opened for award through competition). Initially, their areas were covered by the impact assessments conducted for the areas in 2012. However, the zero alternative in the completed impact assessments was that only 3 000 MW should be built on Sørlige Nordsjø II and 1 500 MW on Utsira Nord. Therefore, the strategic impact assessments will consider the effects of the possible capacity increases.
The Vestavind B area is located outside areas in Vestland and is suitable for floating offshore wind, similarly to Utsira Nord. The government’s grounds are that the area has good wind conditions, and that comprehensive existing infrastructure, substantially oil and gas installations, contributes to familiarity with established industries and interests in the area. This also appears suitable because there is high power consumption in the area onshore with many plans for further power consumption, and the area has available capacity in the transmission network.
The NVE will now initiate strategic impact assessments in accordance with the established research programs. The strategic impact assessments for the round in 2025 should be submitted to the Ministry of Petroleum and Energy by the end of November 2024, while the strategic impact assessments for the other 17 areas should be completed by the end of June 2025. After each strategic impact assessment is prepared, the government (formally the King in Council) will consider whether the relevant areas should be opened for offshore wind development.
Real Estate
Key contacts: Tom Rune Lian, Ståle O. Meleng and Stig L. Bech
Transaction activity is at a lower level than in recent years. We perceive that this is primarily due to a challenging financing market where money has become more expensive and harder to obtain. It is clearly more difficult for sellers and buyers to meet. The development side is currently a bit hesitant, but particularly early-stage activity accounts for a significant portion – players are preparing for the market to pick up.
The status on the transaction side is characterized by parties not agreeing on price, differing expectations, and time-consuming processes where financing is a wildcard. In terms of interest rates, we may be reaching an upper level towards the end of the year and the beginning of next year, but the market is also prepared for it to take some time before we see real improvements.
Although interest rates may stabilize, there is uncertainty surrounding further growth in the underlying rental market, and it may take some time before there will be a decline in yields. Nevertheless, a stable interest rate situation should form a solid foundation for the transaction market to pick up again, provided that the financing market continues to function well.
A lot is happening off-market in terms of new partnerships, for example joint ventures, where industrial and financial players can complement each other.
We see a shift in focus among many of our clients and receive more inquiries related to a “better safe than sorry” mindset. It is more relevant now to consider what happens if tenants do not pay rent or go bankrupt, and how to prepare for such a scenario.
We find that we spend more time on how clients can best position themselves to secure their existing revenues going forward.
There is a slight shift in focus among banks as well. We find that the focus is directed towards debt serviceability rather than the debt ratio, although the latter is, of course, also important.
ESG
Key contact: Georg Abusdal Engebretsen
Several recent decisions regarding legal changes in Norway are relevant to the ESG regulatory landscape. This includes the introduction of stricter compliance requirements in the cleaning industry and the construction sector to combat social dumping and labor market crime. Furthermore, it has been determined that climate and environmental considerations should generally account for a minimum of 30 per cent in public procurement processes. These regulations will come into effect on January 1, 2024.
Additionally, several proposals for legal amendments have recently been presented to incorporate EU legal frameworks related to climate and sustainability into Norwegian law. This includes the Waste Framework Directive and an enhanced product framework for sustainable products in line with the EU’s Circular Economy Action Plan. Furthermore, the EU’s climate package “fit for 55,” including the EU Emission Trading System (ETS), is currently under consideration in the EFTA states, with the expectation that this legislation will be implemented in Norwegian law through amendments to the Climate Quota Act.
Sanctions
Key contact: Georg Abusdal Engebretsen
Norway has aligned itself with the EU’s eleventh package of sanctions against Russia. The sanctions package has now been incorporated into Norwegian law with a few national adjustments.
This summer, the Norwegian Ministry of Foreign Affairs released a new guide for businesses regarding the Russia sanctions. The guide includes information on how the sanctions against Russia should be interpreted, a non-exhaustive checklist for exporters and importers, as well as statements outlining the due diligence requirements imposed on businesses.
Financial Regulatory
Key contact: Kjersti T. Trøbråten
The temporary regulation on investment services from investment firms outside the EEA expired on October 1st. The Ministry of Finance (the “MoF”) has, however, amended the Securities Trading Regulations by adding a new provision that, under certain conditions, entitles undertakings with their head office outside the EEA to provide investment services and perform investment activities in relation to Norwegian eligible counterparties and the Norwegian Banks’ Guarantee Fund without a Norwegian authorisation. The amendment entered into force with immediate effect.
On September 29th, the MoF identified which financial institutions that are considered systematically important in Norway.
Permanent regulation granting third-country entities permission to provide investment services to eligible counterparties
The Securities Trading regulation was amended by The Ministry of Finance (the “MoF”) by adding a new section 9-39a which entered into force with immediate effect from the day of publication on September 11th. Information regarding the provision is available on the Norwegian Supervisory Authority’s (the “NFSA”) website (in English).
The amendment allows non-EEA investment firms to carry out investment activities in relation to Norwegian eligible counterparties and the Norwegian Banks’ Guarantee Fund without a Norwegian authorisation, provided that the following conditions are met:
- The entity has an authorization to carry out such investment activities/services from the supervisory authority in its home state and is under supervision in its home state.
- The entity is not on listed on the Financial Action Task Force’s (FATF) lists (grey or black list).
- The NFSA and the supervisory authority of the entity’s home state have entered into a memorandum of understanding concerning supervisory cooperation.
The temporary regulation on investment services from investment firms outside the EEA to eligible counterparties and professional clients (Temporary Permission Regime) expired on October 1st.
Systematically important financial institutions
The MoF shall, in accordance with the capital requirements framework, each year decide on institutions that are identified as systemically important in Norway and are required to hold O-SII buffers. On September 29, the MoF identified which financial institutions that are considered systematically important, and also the buffer requirement for these institutions. For more information, see here (in English).
Restructuring and Insolvency
Key contacts: Kristine Hasle, Ståle Gjengset and Ingrid Tronshaug
As for many countries around the world, the number of bankruptcies in Norway dropped significantly during the pandemic years 2020-2022. Going from approx. 5,000 bankruptcies in each of 2018 and 2019, the numbers went down to approx. 4,000 in 2020 and a little over 3,300 in 2021[1]. This development was contrary to predictions that especially the pandemic lockdowns would lead to a wave of bankruptcies. Several factors are generally pointed out as reasons for why such a wave never materialised, including governmental aid, postponement from the tax authorities, a higher will amongst creditors to negotiate solutions, a shift in domestic consumption, and more. When society started to return to normal after the pandemic, many again assumed that there would be a post pandemic wave of bankruptcies caused especially by the governmental aid repayment plans. Once more, the predictions failed although the number of bankruptcies did go up in 2022, to approximately 3,700.
[1] Bankruptcy numbers from the Register of Bankruptcies, The Brønnøysund Register Centre
Through 2023, the numbers have continued upwards but not mainly due to the pandemic’s aftermath. Delivery issues caused by the war in Ukraine from February 2022, irregularly high electricity costs through the late fall and winter of 2022/2023, several increases made to the key policy rate going from 0 per cent in September 2021 to 4,25 per cent in two years[2], and the core inflation rate in Norway reaching an all-time high of 7 per cent in June, 2023, are all prominent factors contributing to the growing bankruptcy numbers. Living costs have become much higher, affecting spending power and operating results. The real estate market has slowed down, and the sale of new homes in particular has severely decelerated causing construction postponements.
As per late September 2023, approximately 3,000 bankruptcies had been opened in Norway, which is about 22 per cent higher than at the same time in 2022. Certain industry sectors appear to be more affected than others, such as retail and hotels/restaurants which have seen more or less a doubling in bankruptcy cases over the last year. Real estate and construction are other industries that are especially exposed, reporting 66 per cent more bankruptcies in September 2023 than in September 2022 and compared to all of 2022, the increase is 23 per cent this far in 2023. We are still not back to pre-pandemic levels, but the forecasts moving forward are not bright as debt-collection cases are continuously elevating, prices are growing, and The Central Bank of Norway has alerted that a further increase in the key policy rate is to be expected.
[1] As from 21 September 2023.
Financing: Bank Credit Market
Key contacts: Atle Gabrielsen and Petter Thomren Moltu
After an initial period of hesitation at the onset of the inflation period, the Norwegian bank lending market and the banks appear to have adapted to the increased cost of funding. However, uncertainty remains due to potential further increases in the Central Bank rate and the duration of the current funding cost environment. As a result, the period from binding term sheet to signed credit agreement is typically shorter as banks are not willing to commit to pricing for a longer period.
The increased funding costs primarily manifest in the base rate, with only a limited impact on the margins.
The effects of the funding costs are highly industry-specific, with the real estate and retail industries being the most affected. The availability of new credit in these industries largely depends on the relationship with the customer or its sponsor/owners. Terms and structures have become significantly more restrictive compared to a few years ago and with the Norwegian high yield market open for transactions companies that are not able to raise bank financing are now entering the bond market.
For other industries, the situation may be more favorable. However, overall, it is fair to say that banks have become more selective and somewhat less accommodating to borrowers seeking flexibility in terms for the sake of having flexibility.
Financing: Corporate Bonds
Key contacts: Petter Thomren Moltu, Kristine Hasle and Eirik Heggenes Lauvstad
The Norwegian corporate bonds market has been strong from the beginning of June with a substantial number of issuances. Most of the issuances have been NOK denominated, with several over 1 billion NOK. Axactor ASA’s issuance of a NOK 2.3 billion senior unsecured bond is the largest high yield NOK issuance since 2021. Many repeat issuers have used the market to secure refinancing, but there have also been some new issuers. As in the first half of the year, repeat issuers have received substantial interest from investors, and they have been able to achieve interest rate levels close to or better than previous issuances (e.g. Kistefos’ NOK 1,250,000,000 senior unsecured bond issue). As opposed to earlier this year, we have seen new issuers being able to attract investors’ attention as well, which shows that the investors are interested in attractive deals.
There have been issuances in a wide range of sectors, with traditionally strong sectors such as shipping, industry and oil and gas as the primary sectors. Such sectors have benefitted from high oil and gas prices and shipping rates. Floating rate has been the primary choice for interest rate, but we have also seen fixed rates.
Macroeconomic trends will continue to have a significant effect on the Norwegian corporate bond market. The inflation in key economies have stabilized and started to decline. It is expected that the central banks will start to slow down the increase in interest rates, and a peak is expected in the coming months depending on key figures.
Read more about market outlooks in our recent newsletter Strong Norwegian corporate bond market so far in H2 2023.
Employment Law
Key contacts: Christel Søreide, Eli Aasheim and Jan Fougner
The Norwegian government has introduced amendments to the Norwegian Employment Act with the aim to ensure increased direct and permanent employment. The new legislation includes extensive restrictions on hiring-in from staffing agencies, which entered into force in April 2023. The legislation now prohibits hiring-in workers from staff agencies for “work of a temporary nature”. This means that hiring-in is only permitted in connection with replacements/temps, internships or labour market schemes in cooperation with the Labour and Welfare Service.
There are certain exceptions to this restriction, that apply e.g. within the health care service and for companies bound by collective bargaining agreements that conclude agreements on hiring-in with the employee representatives. Further, there is an exception that applies for hiring in specialist workers performing advisory and consultancy services. The latter exception is particularly practical for many organisations, as it allows hiring-in specialists (e.g. within IT and technology) from staffing agencies, provided the advisory and consultancy services relate to a defined project. The Norwegian Government has recently proposed another exception from the restrictions that applies for the event industry, allowing hiring-in from staffing agencies for specific cultural events, festivals, sporting events etc. The need for new exceptions substantiates the practical challenges that the restrictions on hiring-in cause within different industries.
Further, the Norwegian government also passed regulations that totally ban hiring-in employees for building work at construction sites in Oslo/Viken and former Vestfold.
The Norwegian government’s aim with the new regulation is to ensure increased direct and permanent employment. The new rules have been a hot topic of discussion in the Norwegian industry and have resulted in substantial redundancy proceedings in staffing agencies and challenges for user undertakings with temporary labour supply.
On 19 July 2023, EFTA Surveillance Authority (ESA) initiated investigations against the Norwegian government by sending a “letter of formal notice”. In the letter, ESA expresses the point of view that the new restrictions on hiring-in from staffing agencies are in breach of the EU Directive on temporary agency work. In summary, ESA points out the following:
- The implemented restrictions are very far-reaching and are liable to have severe consequences for staffing agencies, user undertakings and employees of staffing agencies.
- ESA states that the Norwegian government has not substantiated that the restrictions will result in more direct and permanent employments in Norway and that restrictions just as likely may result in more use of temporary employment, more part time work, more overtime work and more dismissals.
- ESA is of the opinion that the Norwegian government has not substantiated that the use of hiring-in from staffing agencies in Norway is increasing nor of a scope that necessitates such severe restrictions. ESA refers to the fact that the use of hiring-in from staffing agencies has been stable for the last 10 years. Further, ESA points out that the Norwegian government has not considered other less restrictive alternatives to the new regulations, although several suggestions were presented during the hearing.
The Norwegian Government was given a deadline of two months to respond to ESAs letter. Thereafter, ESA will assess whether to deliver a “reasoned opinion”. However, until the EFTA Court would rule that the restrictions constitute a breach of treaty, they will continue to apply.
IPR & TMT
Key contacts: Rune Opdahl, Hans Erik Johnsen and Anne Marie Sejersted.
Data Protection/Privacy
In July this year, the Norwegian Data Protection Authority issued a decision against Meta for a temporary ban on behavioral marketing on Facebook and Instagram. Following legal action by Meta, the Oslo District Court upheld the decision. On this basis, the Norwegian Data Protection Authority has requested the European Data Protection Board to make the decision permanent and applicable throughout the EEA.
Intellectual Property
The Norwegian Court of Appeal has recently ruled in an unfair competition matter regarding copying of a non-patented product in the marine sector. The copy product was found unlawful and banned from the marked. The judgement confirms that the implied duty of loyalty applies between previous business partners both during and after the collaboration. The case shows the relevance of the provision of the Norwegian Marketing Act on fair business practices. The case was handled by Wiersholm. The appeal to the Supreme Court was recently denied.
Dispute Resolution: State Aid
Key contacts: Thomas G. Naalsund, Stephan L. Jervell, Olav Fr. Perland and Christian Hauge
Two recent state aid rulings from Norwegian courts warrant attention due to their demonstration of the inherent risks for both the provider and recipient of unlawful state aid.
The first ruling, issued by the Supreme Court, pertains to a property sale to the Municipality of Oslo. The municipality purchased multiple properties from a private entity, but later determined that it had overpaid, and that the excess amount constituted unlawful state aid. Consequently, the municipality sought to recover the alleged unlawful aid. The Supreme Court ruled that any amount paid above the market price, in cases where the price is clearly inflated, is considered unlawful state aid. However, a recovery order for unlawful state aid f from a public authority does not provide sufficient grounds for the private party to terminate the contract. Thus, this ruling serves as a cautionary note for private entities entering into contracts with public authorities for the sale or purchase of assets, especially when the value of such assets is difficult to determine.
The second ruling, from a court of appeal, revolves around a municipal fitness centre accused of receiving unlawful state aid. The court found that the fitness centre had indeed received unlawful operational state aid in 2021 and 2022. As a result, compensation was awarded to the private fitness centres that initiated the case, marking the first time such compensation has been granted in a Norwegian state aid case. It’s worth noting that compensation to competitors of recipients of unlawful state aid is seldom granted by national courts in other EEA countries.
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