"Penny stocks": call for action

Companies applying for primary listing on Oslo Børs and Euronext Expand (the regulated markets) must at admission have an expected trade price of at least NOK 10 per share. For admission to trading on Euronext Growth Oslo (a multilateral trading facility), the listing requirement for the expected minimum price is NOK 1 per share.

For companies listed on the regulated markets, Oslo Børs' continuing obligations stipulate that the observed share price should not persistently be lower than NOK 1 per share. If the shares trade below this level for six months, the company's board of directors must implement measures to raise the share price. These measures should be implemented "as soon as practicable and at the latest within four months" after the end of the six-month period. Oslo Børs may, in exceptional cases, grant an extension of the four-month deadline. 

On Euronext Growth Oslo, where the majority of the companies trading below NOK 1 per share are listed, there are no continuing minimum share price requirements.

Consequences for companies on the regulated markets with a persistently low share price

Oslo Børs will notify a company listed on the regulated markets if its shares have traded below NOK 1 for more than six months. The six-month period is determined by Oslo Børs and is not affected if the share occasionally trades at or above NOK 1. 

If the situation is not remedied within the four-month period, the board of directors must propose that the general meeting adopts a reverse share split. In a reverse share split, the number of shares in the company is reduced by combining shares in a specific ratio. Simultaneously, the nominal value of the share is increased so that the total share capital remains unchanged. For example, a 100:1 ratio means that every 100 shares are combined into one share. Consequently, the share price would increase by a factor of 100.

Carrying out a reverse share split in Norwegian companies requires an amendment to the articles of association. Such amendment will, for most companies, require the approval of at least two-thirds of the votes cast and the share capital represented at the general meeting. As the reverse share split in principle should not affect the value of shareholdings, only the number of shares issued, shareholders should have no inherent reason to oppose the resolution. 

If the board of directors does not secure the necessary support for its proposal at the general meeting or is unsuccessful with other measures to raise the share price, the company may ultimately face sanctions from Oslo Børs. These sanctions may include fines or suspension of trading. In extreme cases, there is a legal basis for delisting the shares. The sanctioning remedies available to Oslo Børs in such cases should be viewed in the context of suitability for listing. 

Other considerations related to a persistently low share price

In addition to potential sanctions from Oslo Børs, a persistently low share price may have practical, commercial, and other legal consequences.

A low share price may create challenges for market makers and liquidity providers when quoting prices. For companies, a low share price may lead to negative publicity, reputational loss, or undesired high volatility. Disproportionate price fluctuations may weaken investor confidence and increase selling pressure during price declines, which in turn may cause potential investors to refrain from investing in the company, favoring investment in companies with a higher and more stable/predictable share price.

Low share prices may also negatively impact trading volumes, as they are typically associated with a high 'spread' (the difference between the observed bid and ask prices), compared to higher-priced shares that are perceived more attractive to trade. 

A reverse share split may be an appropriate remedy to reduce the spread and improve liquidity in the share.

A practical challenge related to a low share price frequently arises in connection with equity offerings, especially with private placements that need to be conducted on an accelerated timeline. Norwegian company law prohibits subscriptions of shares at a price below the nominal value (par value) of the share. For a number of "penny stocks," the trading price is continuously close to or below the nominal value of the share. If it is necessary to price the offering below the nominal value, this will require a share capital reduction where the nominal value of the share is reduced.

If the company cannot simultaneously increase the share capital by an amount at least equal to the share capital reduction, or if it does not have "losses that cannot be covered otherwise", a statutory six-week creditor period will apply before the share capital reduction becomes effective. If the company can account for such losses—implying that all equity has been lost—the share capital reduction can be made without a creditor period. Pursuant to statutory law this would however imply that the company is prohibited from making dividend distributions for three years from the date of the registration of the share capital reduction in the Norwegian Register of Business Enterprises (unless the share capital is subsequently increased by an amount at least equal to the reduction amount). Accordingly, the requirement for a share capital reduction may have an unexpected negative impact on the timeline of the capital raise, the company's financial position, and its dividend strategy.

For Euronext Growth companies planning an "uplift" to one of the regulated markets, or in the event of an uplift from Euronext Expand to Oslo Børs, a low share price may imply a delay until a share capital reduction is effective. A low share price can also have implications for companies involved in statutory mergers, demergers, or other significant corporate changes, including "reverse takeovers". In such cases, the company may have to ensure compliance with the listing conditions regarding share price level to retain its listing.

Considerations in a reverse share split

A reverse share split is the primary remedy for companies wishing or required to raise its share price. Since 2021, nearly 30 companies across the Oslo Børs' marketplaces have conducted a reverse share split for this purpose.

Proposing the ratio in a reverse split can be challenging for the board of directors. The board of directors must consider how to handle rounding issues, including whether shareholdings not divisible by the relevant ratio should be rounded up or down.

Furthermore, it should be considered whether new board authorisations need to be granted by the general meeting if existing authorisations for share capital increases cannot be applied due to the current nominal value of the shares or do not take into account the nominal value or share price after the reverse share split. This may also include any board authorisations to acquire the company's own shares, which should include the minimum and maximum amounts that may be paid for each share.

Companies that have issued subscription rights, warrants, convertible loans, or other financial instruments linked to the shares should also consider whether the framework around these instruments adequately regulates the situation after a reverse share split.