Norway International Update – Q1 2023

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

Q1 2023 was not anticipated to be a buoyant start to the year, but the Norwegian economy has fared better than expected, with unemployment remaining low and Confederation of Norwegian Enterprise (NHO) stating businesses are overall quite optimistic about the future. There is, however, anxiety about interest rate increases, with the policy rate raised once more from 2.75% to 3% on 22 March. Norway has lagged behind most of its trading partners in raising its interest rates and this, combined with increased market turbulence, has likely caused the NOK exchange rate to depreciate to lower than expected, losing around 15% and 18% of its value compared to EUR and USD respectively in the last 12 months. This is a much discussed topic nationally, particularly with the effect this has on increased prices for all households.

Q1 2023 saw subdued M&A activity and very little IPO activity with the window remaining closed. International interest remains strong, particularly with the current weakness of the NOK and there remain good opportunities in strongly performing sectors. However, the market still remains volatile and access to debt financing remains highly challenging. In particular, activity levels within real estate remain low due to increasing interest rates, currency depreciation and the resulting impact on yields making investment in this sector more unpredictable in the short term. A general observation is that the companies that are successfully selling are those that are highly attractive in any market. As always, predictions remain extremely challenging, but we remain in a cautiously optimistic mode for the second half of 2023 and we now see signs of increased activity levels within M&A compared with the previous quarter. At Wiersholm, we ranked #1 in the M&A rankings of legal advisers in Norway for Q1 2023 by Mergermarket, both by deal value and deal count, advising on 23 deals with a total deal value of USD 1.7 billion.

M&A

Key contacts: Harald Hellebust, Kai Thøgersen and Jarle Kvam

Many were expecting and hoping to see increased M&A activity in Q1. Observing activity levels in our M&A team would suggest a modest increase in the number of ongoing processes from Q4 2022. However, the market still remains volatile. Interest rates continue to increase – in Norway, most recently up to 3 per cent on 23 March – and inflation remains high. Access to debt financing remains highly challenging, as seen in the capital markets. Looking forward, the same deal drivers exist as across all of 2022, with good opportunities remaining, especially in highly attractive sectors, but there is also a need for greater macro and geopolitical stability, the wait for which continues. At Wiersholm, we ranked #1 in the M&A rankings of legal advisers in Norway for Q1 2023 by Mergermarket, both by deal value and deal count. Our team of M&A lawyers advised on 23 deals with a total deal value of USD 1.7 billion. The deals we have advised on included public and private M&A, private equity, small, mid and large cap deals.

Many were expecting and hoping to see increased M&A activity in Q1. Observing activity levels in our M&A team would suggest a modest increase in the number of ongoing processes from Q4 2022. As a general observation, sellers' pricing expectations appear to have adjusted to be more in line with the market, resulting in a higher chance of transactions completing, although perhaps not as many as was hoped for. International interest has always been present, but a Norwegian acquisition presents an even more attractive proposition with the current weakness of the Norwegian kroner, the favourable rate also helping to bridge the gap between and asking price and offer price.

However, the market still remains volatile. Interest rates continue to increase – in Norway, most recently up to 3 per cent on 23 March – and inflation remains high. Access to debt financing remains highly challenging, as seen in the capital markets. Conditions can and do change quickly on a deal to deal basis, resulting in frequent postponements and delays, with additional time taken to consider options and focus on preparation, planning and project management. High caution remains in the market, and similar to late 2022, strategic deals are more common, with less auction processes – although we have seen this slightly increasing lately. A general observation is that the companies that are successfully selling are those that are highly attractive in any market, or that have a critical need to sell.

Looking forward, the same deal drivers exist as across all of 2022, with good opportunities remaining, especially in highly attractive sectors, but there is also a need for greater macro and geopolitical stability, the wait for which continues.

At Wiersholm, we ranked #1 in the M&A rankings of legal advisers in Norway for Q1 2023 by Mergermarket, both by deal value and deal count. Our team of M&A lawyers advised on 23 deals with a total deal value of USD 1.7 billion. The deals we have advised on included public and private M&A, private equity, small, mid and large cap deals.

IPOs

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

Q1 2023 saw very little activity with the IPO window remaining closed. Seacrest Petroleo was the only company that completed an IPO in the first quarter, which demonstrates the fact that it is still possible to attract investors within certain segments. The optimism that has carried over from 2022 remains as there are specific transactions being prepared. The hope is that these continued postponements will result in a healthy pipeline in the second half of 2023.

Q1 2023 saw very little activity with the IPO window remaining closed. Seacrest Petroleo was the only company that completed an IPO in the first quarter, which demonstrates the fact that it is still possible to attract investors within certain segments. There are still some good opportunities in strongly performing sectors, such as shipping, drilling and oil and ancillary businesses. It continues to be challenging to get cornerstone investors on board for a listing, with the result being that the large listings planned in 2022 continue to be in planning and 'wait and see' mode. There remains activity for public-to-private processes, in particular with investor interest from abroad. There are interesting targets in Oslo still, but these are complex processes with a lot of varying factors and they take time.

The optimism that has carried over from 2022 remains as there are specific transactions being prepared. The hope is that these continued postponements will result in a healthy pipeline in the second half of 2023. As always, predictions remains extremely challenging, but we remain in a cautiously optimistic mode for the second half of 2023.

Energy: First Norwegian offshore wind tender

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

On Wednesday 29th of March, the Norwegian Ministry of Petroleum and Energy announced the tender for allocation of project areas at Sørlige Nordsjø II and Utsira Nord. The tender documents set out the terms and conditions for the tenders, and describe the process leading up to the award of project areas, the tender parameters and the documentation to be submitted by the participants. While the start-up for offshore wind development in Norway has been announced several times, the Government's announcement indicates that the race is now definitely underway.

The tendering for offshore wind projects on the Norwegian continental shelf is finally underway. The tender documents set out the terms and conditions for the tenders, and describe the process leading up to the award of project areas, the tender parameters and the documentation to be submitted by the participants. While the start-up for offshore wind development in Norway has been announced several times, the Government's announcement indicates that the race is now definitely underway.

There are several similarities between the tender documents for Sørlige Nordsjø II and Utsira Nord, but also a number of significant differences as to type of tender and how applicants are assessed. The differences may to a large extent be traced back to the difference in maturity of the projects, and the expected level of costs between bottom-fixed and floating offshore wind.

The tender documents are based on the proposals submitted for consultation by the Government in December 2022. However, the final tender documents contain substantial clarifications and elaborations in relation to the consultation documents, especially for the process leading up to the allocation. It is also clear that the Government has listened to the views of the industry and the public consultation feedback in several areas. One example is the requirements for reference projects, where the requirement for experience from development of HVDC grid facilities has been adjusted for Sørlige Nordsjø II.

For Sørlige Nordsjø II,suited for bottom-fixed turbines, award of acreage will be based on a two-step process with an initial prequalification, and a subsequent auction on a CFD contract. The prequalification deadline is set to 4 August 2023, with the auction expected in December 2023.

The Utsira Nord Area is suited only for floating wind turbines. Here the award process will be conducted through a single qualitative competition. The application deadline is 1 September 2023. For Utsira Nord, a subsequent CFD competition is indicated as part of the licensing process.

The Government also announced at the press conference that a new tendering process for offshore wind areas will be launched in 2025.

Please find more information in our separate newsletter published on March 29: Tendering for offshore wind in Norway launched

Energy: Carbon capture and storage (CCS)

Key contact: Sondre Dyrland and Kjetil Stensvik

Carbon capture and storage ("CCS") continues to be a must discussed topic not least in relation to the government-funded Longship project which is ongoing. In parallel, the government has noted increased interest from commercial players and as a result announced an area in the North Sea for applications related to injection and storage of CO2. A consortium consisting of Sval Energi AS (as proposed operator), Storegga Norge AS and Neptune Energy AS (the "Trudvang partners") applied for a storage licence within the application deadline of 22 February 2023. In addition, the Ministry of Petroleum and Energy received applications from Equinor ASA and Wintershall DEA Norge ASA. According to the Trudvang partners, it will be possible to inject about nine million tonnes of CO2 per year for a period of 25 to 30 years, indicating a total storage capacity of at least 225 million tonnes of CO2. The area is expected to be awarded within the end of 1H 2023.

Energy: Aftermath of the Fosen case – indigenous people's rights and windfarm development

Key contacts: Jon Rabben and Inge Ekker Bartnes

The Fosen case has been one of the biggest topics of conversation in Norway during Q1, and has created a number of national and international headlines. The Fosen case, which went all the way to the Norwegian Supreme Court, concerned whether the windfarms at Roan and Storheia violate indigenous peoples' rights of the local reindeer herders under Article 27 of the International Covenant on Civil and Political Rights (ICCPR). This winter, it is not the Supreme Court's decision itself that has caused political and legal turmoil, but primarily the government's subsequent handling of the case that has infuriated indigenous people, environmental activists and human rights defenders, which included Greta Thunberg joining the protesters chained together outside the Norwegian government's offices. The case has demonstrated that a functioning interaction between reindeer husbandry and renewable energy is important if Norway is to meet its ambitions for new power generation and grid infrastructure required for the ongoing energy transition.

The Fosen case has been one of the biggest topics of conversation in Norway during Q1, and has created a number of national and international headlines. The Fosen case, which went all the way to the Norwegian Supreme Court, concerned whether the windfarms at Roan and Storheia violate indigenous peoples' rights of the local reindeer herders under Article 27 of the International Covenant on Civil and Political Rights (ICCPR). This winter, it is not the Supreme Court's decision itself that has caused political and legal turmoil. It is primarily the government's subsequent handling of the case that has infuriated indigenous people, environmental activists and human rights defenders, which included Greta Thunberg joining the protesters chained together outside the Norwegian government's offices.

The background of the Fosen case goes back to 2010, when the Norwegian Water Resources and Energy Directorate issued licenses to build four windfarms on the Fosen peninsula in Trøndelag County. This included Roan and Storheia windfarms, central to the Fosen case. Roan windfarm was completed in 2019. With its 71 turbines, Roan windfarm was the largest windfarm in Norway at the time. In 2020, Storheia windfarm was completed, and took over the title as Norway's largest windfarm with its 80 turbines. Both windfarms are located within the area of the Fosen reindeer grazing district, where Sør-Fosen sijte and Nord-Fosen siida have practiced reindeer husbandry for generations (sijte and siida meaning "reindeer grazing district" in Sami languages, here jointly referred to as the Siidas).

From an early onset, the Siidas argued that the windfarms pose an existential threat to the reindeer husbandry on the Fosen peninsula, and the 2010 licence decision was therefore appealed. However, the Norwegian Ministry of Petroleum and Energy (MPE) upheld the decision in 2013.

The following year, the developer, Fosen Vind, filed an appraisal case for calculation of compensation for expropriation as a consequence of the development of the windfarms. The Siidas demanded that the appraisal case be ruled inadmissible because the licence decision constituted a violation of Article 27 of the ICCPR. The Siidas were not heard by the District Court, and also the Court of Appeal concluded that Article 27 of the ICCPR had not been violated. The District Court awarded the Siidas a total of NOK 19.6 million in compensation. However, the amount of damages was set higher than in the District Court, and the Siidas were awarded approximately NOK 44.6 million each.

Statnett and Fosen Vind appealed the reappraisal to the Norwegian Supreme Court, and the Siidas did the same. Once more, the Siidas demanded that the appraisal case be ruled inadmissible. On 11 October 2021, the Supreme Court ruled that the appraisal case had to be dismissed because the facility licence and expropriation permit were in violation of Siidas indigenous people's rights in Article 27 of the ICCPR, and therefore invalid. However, the Supreme Court did not provide any guidance on the consequences of the ruling for the already established windfarms. On that basis, the Norwegian government has currently not deemed it necessary to remove the wind turbines, and the windfarms are still in operation in 2023.

The government's perceived lack of action or remedial measures resulted in significant protests and demonstrations in February and March 2023. The Siidas and their support groups have made clear that no compensation or mitigating measures can remedy what they see as an ongoing violation of human rights, and are adamant that the only alternative is to remove the windfarms. The government, for its part, appears to refer to Article 2 (3) letter a) of the ICCPR, which requires that each state party to the convention undertakes to effectively remedy any violation of human rights. In practice, this implies that the government does not necessarily have to remove the facilities, as long as it is implementing mitigating measures that are deemed sufficient to ensure that Article 27 of the ICCPR is no longer violated. The uncompromising positions in the case are mainly due to a disagreement on the interpretation of the Supreme Court's ruling and what is required for Article 27 of the ICCPR to no longer be violated.

The government's perceived lack of intention to remove the wind turbines has caused great frustration among the affected Siidas and other activists. In February, several protesters occupied the front desk at the Ministry of Petroleum and Energy's premises and refused to leave. The protesters were forcibly removed by the police at night, three days later. This escalated the action, and led to extensive demonstrations and civil disobedience by way of protesters blocking the entrances to various ministries. The demonstrations ended when both the Norwegian Prime Minister and Minister of Petroleum and Energy apologised and acknowledged the situation as an ongoing violation of the Siidas' human rights.

The case raises several complicated and principled issues concerning the rights of indigenous people that may have a decisive impact on future infrastructure development projects, as well as on current and ongoing expropriation appraisal cases. Among other things, the case highlights developers' risk in taking advanced possession of property subject to indigenous peoples' rights before reaching an amicable agreement or an expropriation case is concluded. This is particularly the case in the northern regions of Norway where a significant portion are subject to grazing rights for reindeer herders. The Fosen case has demonstrated that a functioning interaction between reindeer husbandry and renewable energy is important if Norway is to meet its ambitions for new power generation and grid infrastructure required for the ongoing energy transition.

Energy: Oil and gas

Key contact: Sondre Dyrland and Kjetil Stensvik

Significant interest was showed in the Awards in Predefined Areas (APA) 2022. In January 2023 the Ministry of Petroleum and Energy offered 25 companies ownership interests in 47 production licences in mature areas on the NCS, distributed over the North Sea (29), the Norwegian Sea (16) and the Barents Sea (2). 12 companies were offered one or more operatorships. Otherwise a record-high number of plans for development and operation (PDOs) were submitted by the end of 2022 due to the temporary tax regime. The main bulk of the developments relate to tie-in and use of existing infrastructure, however, Yggrdasil (previously referred to as the NOAKA area) will be an independent development with new infrastructure. Total investments for the developments were PDOs have been submitted are estimated to approx. 300 BNOK and will consequently and in accordance with the government's aim secure a high activity level in the industry in the coming years.

Employment law

Key contacts: Christel Søreide, Eli Aasheim and Jan Fougner

In 2022, there was extensive legislative activity within employment law in Norway. Legislative changes that were proposed and adopted in 2022 will have an impact from the first half of 2023, while new legislative proposals have also been adopted or presented for comments. Legislative changes and proposals, combined with an uncertain market, have led to an increased pressure on alternative forms of staffing. At the same time, the turmoil in the market has resulted in many companies expecting redundancies during the spring of 2023. Nevertheless, we have not yet experienced a big rush of redundancies.

In 2022, there was extensive legislative activity within employment law in Norway. Legislative changes that were proposed and adopted in 2022 will have an impact from the first half of 2023, while new legislative proposals have also been adopted or presented for comments. Legislative changes and proposals, combined with an uncertain market, have led to an increased pressure on alternative forms of staffing. At the same time, the turmoil in the market has resulted in many companies expecting redundancies during the spring of 2023. Nevertheless, we have not yet experienced a big rush of redundancies.

Tightening of the rules on hiring will come into force on 1 April 2023

The tightening of the rules on hiring from staffing companies will come into force on 1 April 2023, with some transitional rules applying until 1 July 2023 for agreements entered into before 1 April 2023. Some of the main changes are:

• Removal of the possibility to hire from staffing companies for work of a temporary nature. At the same time, exceptions have been adopted for i) the hiring of health personnel to ensure proper operation of health and care services and ii) the hiring of employees with special skills who will perform advisory and consulting services in clearly defined projects.
• A ban on hiring from staffing companies is introduced for construction work on construction sites in Oslo, Viken and formerly Vestfold.
• All hired staff from staffing companies are entitled to permanent employment with the hirer after three years, regardless of the basis for hire.
• New provision on the distinction between hiring and contracting, which establishes by law the conditions that constitute hiring as opposed to contract-based assignments.
• Authority to propose an approval scheme for staffing companies. The design and date of entry into force of the scheme are not currently known.

Provisions to strengthen the rights of employees within a group of companies and to clarify the term employee have been adopted with effect from 1 January 2024

On 9 March 2023, the Norwegian Parliament adopted a number of changes to the Working Environment Act. This involved a strengthening of employees rights within a group in connection with redundancies. The changes must be seen in context of the fact that many people are currently working for group companies and that the group management often makes decisions that are of importance to the employees.

• Clarification of the concept employee and a rule of presumption: The most central elements in the assessment of whether a person is an employee or a contractor will be regulated by law.
• Extended rights in the event of downsizing within a group: 1) The obligation to offer other suitable work in the event of downsizing shall not only apply to the employer company, but to all Norwegian companies within the same group. 2) Employees made redundant because of downsizing will be given preferential right to new employment with all Norwegian companies within the group. 3) Groups that collectively employ more than 50 employees must establish guidelines for cooperation, information and discussions across the group companies.
• Extended obligation to discuss staffing: Today's rules on annual discussions with the employee representatives on the use of part-time employment, temporary employment and hiring with the employees' representatives are extended to also include the use of independent contractors and service purchases that have an impact on the staffing.
• Tightened maximum limits for temporary employment: The maximum duration of temporary employment is reduced from four to three years, regardless of the basis for the employment.
• The threshold for when a working environment committee [Nw: AMU] and safety representatives are required is lowered: The current threshold for when a company must have a working environment committee is lowered from 50 to 30 employees.

Both of these adopted changes reduce the employer's flexibility in terms of staffing solutions. Our experience is that the market is currently exploring alternative staffing solutions. Those who have previously hired from temporary work agencies need to look at alternatives, such as direct (temporary) employment or contracting. Those who have previously engaged independent contractors on a regular basis need to review their engagements to assess the risk of re-classification.

Additionally, the turmoil in the market has resulted in many companies expecting redundancies during the spring of 2023. The news coverage in Norway has to some extent reflected that companies have experienced redundancies during the first quarter of 2023, but our experience is that we have not yet seen a big rush of redundancies. We have, however, seen more redundancies in industries that have previously been unaffected, such as tech and IT. In the processes in which we have been involved, we experience that employees are more reluctant to let go of their employment, and as a result an increase in disputes.

Real Estate

Key contacts: Tom Rune Lian, Ståle O. Meleng and Stig L. Bech

After a record strong start to 2022, market activity slowed significantly during the second half as the Norwegian market underwent a repricing, as seen around the world. At the time of writing, with the current challenges in the banking sector, uncertainty is even higher than H2 2022. However, when in crisis, Norway could be seen as a favourable haven for investors in comparison with other countries – with low unemployment rates, solid public finances and a stable and non-populistic democracy based on equality.

After a record strong start to 2022, market activity slowed significantly during the second half as the Norwegian market underwent a repricing, as seen around the world. Some key numbers are:

• Consumer prices have risen rapidly, currently at 6.5% as of March 2023;
• Norges Bank raised the policy rate six times in 2022, currently at 3%, which is the highest it has been since 2009, and it is expected to be hiked further before the summer;
• Throughout H1 2022, the activity in the transaction market was high. However, in H2 2022, the market sentiment shifted, SWAP rates peaked, inflation increased, yields started to hike for the first time in years and the term on everyone's lips was "uncertainty". A transaction volume of NOK 30 billion during Q3 and Q4 is the lowest registered volume for H2 in eight years.

At the time of writing, with the current challenges in the banking sector, uncertainty is even higher than H2 2022. However, when in crisis, Norway could be seen as a favourable haven for investors in comparison with other countries – with low unemployment rates, solid public finances and a stable and non-populistic democracy based on equality. We have also seen a high demand for new buildings in all sectors – including social housing. The latter could be particularly interesting based on potential demand numbers of up to 50,000 units in the period up to 2030, and with strong public financing for up to 50 years and 85% of construction/transaction cost. Also noteworthy is the very high number of leases adjusted with 100% of CPI, probably the world's best inflation hedging at the moment.

ESG

Key contacts: Georg Abusdal Engebretsen

Environmental, social and governance (ESG) considerations continue to play a key role for corporates, regulators and investors in 2023. The first reporting under the Norwegian Transparency Act, which came into force on 1 July 2022, is due on 30 June 2023. As mentioned in our Q4 2022 update, approximately 9,000 companies are covered by the human rights due diligence and reporting requirements under the Act (cf. the thresholds in section 3), and many companies are now busy preparing their first report. In Q1, the new Act on Disclosure of Sustainability Information in the Financial Sector and a Framework for Sustainable Investments (Sustainable Finance Act) came into force in Norway, with a reporting obligation for the fiscal year of 2023. The Corporate Sustainability Reporting Directive (CSRD) entered into force in the EU on 5 February 2023, obliging all large companies and all companies listed on regulated markets to report on their climate and environmental impact. Political signals indicate that Norway will follow the EU's solutions regarding who will be obliged to report and from what time.

Environmental, social and governance (ESG) considerations continue to play a key role for corporates, regulators and investors in 2023.

The first reporting under the Norwegian Transparency Act, which came into force on 1 July 2022, is due on 30 June 2023. As mentioned in our Q4 2022 update, approximately 9,000 companies are covered by the human rights due diligence and reporting requirements under the Act (cf. the thresholds in section 3), and many companies are now busy preparing their first report. The report is to be published on the company's website, and shall at least cover (a) a general description of the company's structure and guidelines for handling actual and potential adverse impacts on fundamental human rights and decent working conditions, (b) information regarding actual adverse impacts and significant risks of adverse impacts that the company has identified through its due diligence, and (c) information regarding measures that the company has implemented or plans to implement to cease or mitigate such impacts and risks, and the results of these measures.

In Q1, the new Act on Disclosure of Sustainability Information in the Financial Sector and a Framework for Sustainable Investments (Sustainable Finance Act) came into force in Norway. The Act incorporates the Sustainable Finance Disclosure Regulation (SFDR) and the EU classification system for sustainable economic activities, often referred to as the "EU Taxonomy", into Norwegian law. As the EU Taxonomy was not yet adopted by Norway at the end of 2022, no reporting requirements for fiscal year 2021 applied, nor will there be a requirement for such reporting for fiscal year of 2022. However, the reporting obligation will apply for the fiscal year of 2023 and the Ministry of Finance has encouraged Norwegian enterprises covered by the reporting obligation to provide voluntary disclosures for the annual reporting period of 2022. Lastly, it should be noted that the EU Taxonomy empowers the European Commission to assess possible extensions to the EU taxonomy, which means that the taxonomy may expand and change over time.

Another recent update in the ESG regulatory landscape includes the Corporate Sustainability Reporting Directive (CSRD), which entered into force in the EU on 5 February 2023. As mentioned in our Q4 2022 update, the CSRD is obliging all large companies and all companies listed on regulated markets (except listed micro-enterprises) to report on their climate and environmental impact and requires the audit (assurance) of reported information. Political signals indicate that Norway will follow the EU's solutions regarding who will be obliged to report and from what time. If Norway follows the EU's timeline, the first companies with obligations under the directive will provide reports for the first time in 2025 and account for the fiscal year of 2024.

Financing: Bonds

Key contacts: Atle Gabrielsen and Petter Thomren Moltu

The Nordic corporate bond market was highly influenced by the global market situation in 2022. New issues declined 56% from record levels in 2021, with a total amount of new issues of EUR 19 billion. A trend to note is the continuing increase in green bond issuances, with almost 30% of corporate bonds issued in 2022 being green bonds. In light of the recent provisional agreement on the establishment of the European Green Bond Standard, we are following the developments in the green bond market with interest going forward. In total, NOK 89 billion were issued in Norwegian corporate bonds in 2022, which is 55% lower than in 2021. Norwegian corporate high yield experienced an even sharper decline, with a new issue volume of NOK 52 billion, compared to NOK 127 billion in 2021. The market remains diversified between sectors, with real estate as the largest sector having 36 % of new issuances. Other large sectors are industrial companies and the oil and gas sector.

The Nordic corporate bond market was highly influenced by the global market situation in 2022. New issues declined 56% from the record levels in 2021, with a total amount of new issues of EUR 19 billion. A trend to note is the continuing increase in green bond issuances, with almost 30% of corporate bonds issued in 2022 being green bonds. In light of the recent provisional agreement on the establishment of the European Green Bond Standard, we are following the developments in the green bond market with interest going forward.

In total, NOK 89 billion were issued in Norwegian corporate bonds in 2022, which is 55% lower than in 2021. Norwegian corporate high yield experienced an even sharper decline, with a new issue volume of NOK 52 billion, compared to NOK 127 billion in 2021. The market remains diversified between sectors, with real estate as the largest sector having 36 % of new issuances. Other large sectors are industrial companies and the oil and gas sector.

The increase in spreads in Norwegian corporate high yield has not been as dramatic as expected. Although the spread has increased, it is typically within the 400 – 650 bps band typically seen.

Notwithstanding challenging market conditions, the first-time default rates remain low, and declined through the year, from 3.7% of total outstanding volume in Q1, to 0.6% in Q4. Further, the Norwegian corporate high yield market remains an attractive market for investors, with the Norwegian HY index ending the year with a positive return of 5.2%.

Norwegian Corporate Bond Market so far this year

After a slow start to the year with few new issuances, the market gained momentum from late February. The recent uncertainty in the financial market has iced the market a bit, but we expect an uptick in new issues towards the summer. The spreads have stabilised at a high level.

We have assisted on three major deals so far this year:

• SFL Corporation ltd. in connection with a senior unsecured 150,000,000 USD bond issue.
• legal advisor to the Managers and Nordic Trustee, in connection with Archer Norge AS's issuance of a 2^nd lien secured 200,000,000 USD bond, to be issued 3 April 2023.
• on a senior secured real estate bond.

Market going forward

As above, the market has cooled down after the pre-Easter turmoil. We expect the market to pick up after Easter, as a sizeable amount of Nordic corporate bonds mature in 2023. Further, investors have seen earnings increase due to the rise in interest rates, and as such the investors should have funds available for participation in new issuances. Market participants have commented that investors are more cautious, but interest remains high for the right type of issuers.

We have several mandates going forward, and see activity in a wide spread of sectors. We also see an increase of interest in convertible bonds, which may be an option to keep interest lower, while still attracting investors.

As stated above, the first-time default rate decreased throughout 2022. However, with current market conditions, we may see a spike in restructurings when current loans and/or bonds are to be refinanced.

Restructuring of the DOF group

After a three year process, the restructuring of the DOF group was completed in late March. Three bonds issued by DOF Subsea AS were a substantial part of the restructuring, with the bondholders exchanging their bonds into 55.556% of the shares in the new parent company in the DOF group, and a new senior unsecured NOK 675,000,000 bond issued by DOF Subsea AS.

In connection with the refinancing of the DOF group, we have assisted Nordic Trustee as bond trustee on behalf of bondholders in the three bonds issued by DOF Subsea AS.

The restructuring was completed after bankruptcy was declared in DOF ASA, after attempts to implement the restructuring on a voluntary basis and through reconstruction failed. Following the restructuring, the company has reduced its debt with appx. NOK 6 billion.

Sanctions

Key contact: Georg Abusdal Engebretsen

The 24 February 2023 marked one year since Russian forces began a full-scale invasion of Ukraine in 2022. Since then, the European Union has adopted 10 packages of sanctions against Putin and the Russian regime – the tenth being on 25 February 2023. At the beginning of April, the Norwegian Government announced that a new set of sanctions have been implemented in Norwegian law through amendments to the relevant regulations (the Ukraine Regulation), which mirrors the 10^th package of sanctions adopted by the EU. Over the past year, the Norwegian Government has repeatedly emphasized that Norway stands united with the rest of Europe and would align itself with all of the EU's sanctions packages. Consequently, it is expected that developments in the EU's sanctions policy will continue to have an impact on the Norwegian sanctions regime through 2023.

The 24 February 2023 marked one year since Russian forces began a full-scale invasion of Ukraine in 2022. Since then, the European Union has adopted 10 packages of sanctions against Putin and the Russian regime – the tenth being on 25 February 2023. At the beginning of April, the Norwegian Government announced that a new set of sanctions have been implemented in Norwegian law through amendments to the relevant regulations (the Ukraine Regulation), which mirrors the 10^th package of sanctions adopted by the EU.

As of April 2023, the European sanctions can be summarized as follows:

• Sector-based sanctions have been implemented in sectors such as finance, energy (including oil and gas), mining, transportation, technology, defence, multi-purpose goods, raw materials and in the maritime industry. A more recent example of a sector-based sanction is the introduction of price cap mechanisms for Russian Petroleum products. On 4 February 2023, the EU agreed to set the price cap for Russian Petroleum products at USD 45 per barrel for discount to crude oil, and USD 100 per barrel for premium to crude oil. The Council has informed that it will review the price cap mechanism for crude oil as of mid-March, and the review will occur regularly every two months.
• Restrictions on business with the non-government-controlled areas of Ukraine: Donetsk, Luhansk, Zaporizhzhia, Kherson, Crimea and Sevastopol. The restrictive measures include import ban on goods from the territory and export ban on certain goods and technology.
• Individual sanctions aimed at 1,473 individuals and 205 entities. These are mainly associated with the sanctioned sectors, as well as with Russia's political and economic elite. The sanctions include freezing of the sanctioned parties' funds, including a ban on providing resources to the targeted entities and persons. This means that EU citizens and companies may not make payments or supply goods and other assets to such recipients. In effect, business transactions with designated companies and persons cannot legally be carried out.

Over the past year, the Norwegian Government has repeatedly emphasized that Norway stands united with the rest of Europe and would align itself with all of the EU's sanctions packages. Consequently, it is expected that developments in the EU's sanctions policy will continue to have an impact on the Norwegian sanctions regime through 2023.

Tax and VAT

Key contacts: Nicolay Vold, Andreas Bullen and Bettina Banoun

On September 28 2022, the government presented a proposition for new rules on taxation of profit from natural resources, specifically fish farming and onshore wind power, and an increase in the resource rent-taxation on hydropower and an extraordinary tax on wind and hydropower. This is due to assumed extraordinary income in these industries and the government's desire to distribute profits from natural resources more effectively. After a heated public debate, the government proposed an updated bill on resource rent tax on the fish farming industry on 28 March, 2023, which sets the tax rate at 35%, down from 40% in the original proposal. Further, the proposal includes a standard deduction of NOK 70 million. The new tax will per the proposal enter into force retroactively, from 1 January 2023.

Resource rent-taxation

On September 28, 2022 the government presented a proposition for new rules on taxation of profit from natural resources. The proposal introduced a resource rent-taxation on fish farming and onshore wind power, as well as an increase in the resource rent-taxation on hydropower and an extraordinary tax on wind and hydropower. The proposal is largely due to assumed extraordinary income in these industries and the government's desire to distribute profits from natural resources more effectively. These taxes will be in addition to taxation under the regular tax system in Norway.

After a heated public debate, the government proposed an updated bill on resource rent tax on the fish farming industry on 28 March, 2023. The proposal sets the tax rate for this particular tax at 35%, down from 40% in the original proposal. Revenues will be based on the market value when fish are removed from the pen, which the companies themselves will set for 2023. From 2024, the aim is to establish an independent price board. Further, the proposal includes a standard deduction of NOK 70 million. The new tax will per the proposal enter into force retroactively, from 1 January 2023.

VAT – electronic media

With effect from 1 January 2023 the exemption for VAT on electronic news services was abolished. This abolishment will affect news services not comprised by the general VAT exemption for printed and electronic newspapers and will in particular apply to news feeds with sound and live images. News services which will remain covered by the general VAT exemption are news which consist "mainly of text and still images".

Working group has reviewed the Norwegian tax system

On December 19, 2022 a working group nominated by the government presented its report to the Minister of Finance. The report recommended a series of changes to the Norwegian tax system. Among the main changes proposed are:

• Capital gains covered by the Norwegian participation exemption method should be subject to 95% tax exemption, not 100% as today
• Dividends covered by the Norwegian participation exemption method should be subject to 95% tax exemption, not 97% as today
• Distribution payments on liquidation shall be deemed dividend tax instead of capital gains to enable withholding tax on such payments where applicable
• The current rules on withholding tax on interest and royalty payments shall be expanded and should no longer be limited to payments to low-tax countries.
• The Norwegian tonnage tax regime for shipping companies is proposed repealed.
• The committee outlines a proposal for measures which means that the tax position paid-in capital (which under current rules may be repaid without tax consequences) is changed. Whether a distribution should be classified as repayment of paid-in capital must be decided upon the company's decision on distribution but shall be limited to the share's proportional share of paid-in capital in the company and further limited to the pertinent shareholder's input value of the share.

Note however, that these proposed changes have not been legislated yet, and are at this stage merely recommendations. Whether these proposed changes will be legislated or not in the future is uncertain.

Financial regulatory

Key contact: Kjersti T. Trøbråten

A new Act on Credit Intermediation will enter into force in Norway on 1 July 2023. The Act shall contribute to consumer protection and financial stability by new requirements relating to, inter alia, authorisation, organisation and good business practice. The Act implements parts of the mortgage credit directive in Norwegian law, but is not limited to intermediation of mortgages.

The Sustainable Finance Act entered into force 1 January 2023. The Act incorporates the EU regulations on taxonomy and sustainable finance disclosure. Other EU rules relating to sustainability have also entered into force in Norway, including the integration of sustainability factors into certain organisational requirements and operating conditions for investment firms and fund managers.

Amendments to the Norwegian Securities Trading Act entered into force 1 February 2023, which implements the amendments to the MiFID II directive that follow from directive (EU) 2021/338 relating to, inter alia, information requirements and product governance.

The Norwegian Ministry of Finance has presented for consultation a proposal from the Norwegian Financial Supervisory Authority on amendments to the financial regulatory framework, including the Financial Institutions Act. The deadline for the consultation is set to 1 June 2023. The Ministry of Finance has also presented for consultation a report about a new Act on the Norwegian Financial Supervisory Authority. The deadline for the consultation is set to 2 June 2023.

A new Act on Credit Intermediation will enter into force in Norway on 1 July 2023. The Act will incorporate parts of the mortgage credit directive (directive 2014/17/EU) in Norwegian law, but is not limited to intermediation of mortgages. The Act sets out, inter alia, authorisation and registration requirements, organisation requirements and rules relating to good business practice. The Act shall contribute to, inter alia, consumer protection and financial stability. In March, the Norwegian Ministry of Finance presented for consultation a proposal from the Norwegian Financial Supervisory Authority on regulations to the new Act. Deadline for this consultation is set to 2 May 2023.

The Norwegian Sustainable Finance Act entered into force 1 January 2023. The Act incorporates the regulation on sustainability-related disclosures in the financial services sector (regulation (EU) 2019/2088) and the regulation on the establishment of a framework to facilitate sustainable investment (regulation (EU) 2020/852). Other EU rules relating to sustainability have also entered into force in Norway, including the integration of sustainability factors into certain organisational requirements and operating conditions for investment firms, cf. regulation (EU) 2021/1253 amending regulation (EU) 2017/565, and the integration of sustainability risks in the governance of insurance and reinsurance undertakings, cf. regulation (EU) 2021/1256 amending regulation (EU) 2015/35. For UCITS management companies, changes stemming from directive (EU) 2021/1270 has been implemented in the administrative regulation to the Securities Funds Act, whilst for AIFM's changes to regulation (EU) 231/2013 through regulation (EU) 2021/1255 has entered in to force.

In February, amendments to the Norwegian Securities Trading Act entered into force, which implement the amendments to the MiFID II directive regarding, inter alia, information requirements and product governance that follow from directive (EU) 2021/338. The aim of those amendments are, inter alia, to ease some of the administrative burdens when trading in financial instruments and to stimulate commodity derivative markets

In March, the Norwegian Ministry of Finance ("the MoF") presented for consultation a proposal from the Norwegian Financial Supervisory Authority (the "NFSA") on amendments to the financial regulatory framework. The proposal from the NFSA contains several amendments to the Financial Institutions Act, including amendments which intend to provide for a more equal treatment of Norwegian and foreign institutions and groups with regard to, inter alia, organisation requirements. The NFSA has also suggested certain amendments to the provisions relating to licensable finance activity. The NFSA has for instance suggested a codification of administrative practice by establishing that the current exception for loans to companies in the same group, cf. the Financial Institutions Act Section 2-1 (3) letter c, also includes groups where the creditor is established in another state.

In September 2021, a committee was established to assess a new Act on the Norwegian Financial Supervisory Authority to reflect, inter alia, the developments both in the area of supervision and regulations. The committee submitted its report, NOU 2023:6, in March 2023. The Norwegian Ministry of Finance has presented the report for consultation with a deadline set to 2 June 2023.

Originally published 28 April 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.