NASDAQ Iceland hf.: Reply to request by Heimavellir hf. for the removal of shares from trading on Nasdaq Iceland's Main Market

1. Introduction

On 21 March 2019, Nasdaq Iceland hf. ("the Exchange") received a request from
Heimavellir hf. ("the Company") for the removal of the Company's shares from
trading on Nasdaq Iceland's Main Market. The request is based on the
deliberations of the Company's Annual General Meeting (AGM) of 14 March 2019,
at which the shareholders voted on a motion to remove the Company's shares from
trading. The AGM approved the motion by 81.3% of the votes cast, with the
remaining shareholders holding 18.7% of the votes rejecting the motion. The
motion was submitted on the basis of communication received by the Company's
Board on 1 February from three shareholders, Snæból ehf., Gani ehf. and Klasi
ehf. 



  1. Report of the Company's Board

A report from the Company's Board sets out the following reasoning for the
removal of its shares from trading: 

  -- That the Company has not been well received by various large players in the
     Icelandic equity and bond markets. This the Board says is, for instance,
     clear from the pricing of the Company's shares, valued since its listing at
     approximately 35% below the book value on the Company's balance sheet. In
     addition, a bond issue in December 2018 did not meet expectations.
  -- That a voluntary offer was made for up to 27% of the Company's shares,
     giving the shareholders an opportunity to divest their holdings in the
     Company.
  -- That the AGM approved the removal of the Company's shares from trading with
     81.3% of votes cast.
  -- That owing to a desire to dissolve the Company, it may be assumed that
     eventually it will not meet the Exchange's listing requirements.
  -- That the liquidity of the Company's shares is inadequate.
  -- That the Company's ownership is not distributed broadly enough.
  -- That the number of shareholders has declined substantially since the
     listing.
  -- That continued listing is likely to erode the market's integrity.



  1. Legal basis

Paragraph 2 of Article 24 of Act No. 110/2007 on Stock Exchanges states:

An issuer who has had securities admitted to trading in a regulated market may
submit a written request for the securities to be removed from trading. A stock
exchange shall grant such a request on receipt of a written reasoning for the
request. A stock exchange may decide not to remove the securities from trading
if such an action would be likely to cause significant damage to investors'
interests or have a negative impact on the integrity of the market. A stock
exchange may also decide to publish the reasoning of the issuer, in part or in
full. However, an issuer may always have its securities removed from trading if
they are admitted to trading in another regulated market. 

In addition, the following explanatory note to section 8.6.1 of the Rules for
Issuers of Financial Instruments on the Exchange ("the Rules") states: 

An issuer's request to the Exchange for removal of its financial instruments
from trading must be accompanied by written reasoning. Generally, the Exchange
requires four weeks' notice to remove financial instruments from trading but if
there is extensive trading and a large number of owners, the Exchange may
decide to postpone the removal of the financial instruments from trading. The
Exchange decides the date of removal of financial instruments from trading on a
case-by-case basis. 

To be able to assess whether or nor a removal of financial instruments from
trading is likely to cause significant damage to investors' interests or have a
negative effect on the credibility of the market the Exchange may, for example,
require the issuer to gauge the stance of the owners of the relevant financial
instrument towards their removal from trading. 

When considering whether the removal of financial instruments from trading is
likely to cause significant damage to investors' interests, primary
consideration is naturally given to the interests of general shareholders and
the minority that voted for continued listing. 

In assessing whether the removal of shares from trading is likely to have a
negative impact on the integrity of the market, the Exchange also considers
whether the company in question meets the requirements for the admission of the
shares to trading on the Exchange's Main Market. 



  1. The Exchange's assessment

  4.1 Company's interests in removing the shares from trading

The Company has requested the removal of its shares from trading on the basis
of a motion to this effect submitted at the Company's AGM, which received 81.3%
of the votes cast. 

In its report the Company's Board notes that it does not consider the Company
to sustain any direct detriment from the removal of its shares from trading,
but that the shares' liquidity will be significantly reduced. It also states
that the liquidity of the Company's shares is already inadequate. The Exchange
considers the shares' liquidity to have been adequate up to this point. At the
end of March, the shares of a total of 232 small-cap companies were listed on
the Nasdaq Nordic exchanges. The average turnover per day over the past 12
months was higher for only 11 of those shares than for Heimavellir's shares.
Therefore, the Exchange considers the Company to meet the liquidity criteria of
the Exchange's Main Market. 

In the report the Board also notes that the number of shareholders has declined
significantly, from 750 to 550, which, it says, is only 50 more than the
minimum stipulated for the admission of shares to trading. It should be noted
that in cases where there has been active market making in company shares, the
Exchange normally considers the minimum adequate number of shareholders to be
300. Thus, the Company clearly meets the conditions for the number of
shareholders. 

The report also mentions that the Company's ownership is not distributed
broadly enough, as 20 of the Company's largest shareholders own nearly 77% of
its shares. For this reason, the report argues, the holdings in public hands
fall short of the 25% minimum stipulated in the Rules. The explanatory note to
section 1.3.17 of the Rules defines a retail investor as follows: 

In this context, the term "Public hands" means a person who directly or
indirectly owns less than 10 percent of the issuer's shares or voting rights.
In addition, all holdings by natural or legal persons that are closely
affiliated or are otherwise expected to employ concerted practices in respect
of the issuer shall be aggregated for the purposes of the calculation. 

Also the holdings of members of the board and the executive management of the
issuer, as well as any closely affiliated legal entities such as pension funds
operated by the issuer itself, are not considered to be publicly owned. 

Calculations of shares that are not publicly owned include shareholders who
have pledged not to divest their shares during a protracted period of time
(so-called lockup). 

The same explanatory note further states:

There may be situations in which more than 25 percent of the shares are in
public hands at the time of the admission to trading, but where the
distribution falls under such percentage thereafter. It should be noted that
the 25 percent rule is a proxy supporting the main principle that there should
be a sufficient share distribution. Consequently, once the shares are admitted
to trading, the Exchange will regularly assess whether share distribution and
liquidity are sufficient from an overall viewpoint, and the 25 percent rule
will thus become only one of many components in such an assessment. This also
means that an issuer that is not complying with the 25 percent rule will not
automatically be considered to violate the rule. 

Given the above, the Exchange considers the holdings by the public in the
Company to exceed by a substantial margin the 25% minimum required. The
Exchange also considers the Company to meet satisfactorily the liquidity
criteria for the Main Market. Therefore, the Exchange does not consider
continued trading in the Company's shares on the Main Market to be liable to
have a negative impact on the integrity of the market. 

The Company's Board points out that a voluntary offer was made for up to 27% of
the shares in the Company, providing the shareholders with an opportunity to
divest their shareholdings. The Exchange does not consider itself to be in a
position to take this point into account. First, shareholders representing
18.7% of the votes at the Company's AGM voted against the removal of the
Company's shares from trading, despite being aware of the aforesaid offer.
Second, it is not clear what position the shareholders would take once the
offer has been finalized. 

The Exchange also points out that one of the offer's conditions is that the
Exchange agrees to remove the Company's shares from trading on the same day as
when the offer expires. The Exchange does not consider this to be in accordance
with acceptable procedures for removing shares from trading, as it would fail
to afford an opportunity to examine the shareholders' position with regard to
the shares' removal from trading after the offer's expiry. 

Moreover, the Exchange notes that the Company's reasoning provides no arguments
to the effect that the shares' removal from trading is likely to benefit the
Company's prospects beyond those inherent in continued listing. 



 4.2 Interests of general shareholders and the minority

Granting the Company's request for removal of its shares from trading would
reduce the liquidity of its shares substantially. It is also clear that
removing the Company's shares from trading would result in the loss of the
investor protection afforded to shareholders under laws and rules relating to
securities admitted to trading on a regulated market. This includes rules on
disclosure and trading by insiders. Many of the shareholders that took part in
the Company's offering when its shares were admitted to trading in May 2018 may
be assumed to have done so on the basis that the shares would subsequently be
traded on the Exchange's Main Market. Furthermore, information has not been
made available on the Company's policy following the removal of its shares from
trading, which would enable the shareholders to assess the benefits of
retaining their shares. 

Moreover, shareholders representing 18.7% of the votes at the Company's AGM
voted against the removal of the Company's shares from trading. The Exchange
considers this proportion of shareholders to be materially high, which
assessment is in keeping with that of other exchanges in our neighboring
countries that are largely subject to the same regulatory framework as that in
place in Iceland. Furthermore, these shareholders will not enjoy the legal
protections afforded by rules on redemptions under the Act on Securities
Transactions No. 110/2007 and the Public Limited Companies Act No. 2/1995.
Clearly, these shareholders could easily be "frozen in" with their holdings in
the event of the removal of the Company's shares from trading. 



  1. Decision

Based on the above considerations, the Exchange believes the removal of the
Company's shares from trading to be liable to cause significant damage to
investors' interests. The Exchange also finds, having regard to the
considerations set out above, that the removal of the Company's shares from
trading could have a negative impact on the integrity of the market. The
Exchange gives particular consideration to the fact that shareholders
representing 18.7% of the votes at the Company's AGM voted against the removal
of the Company's shares from trading. The Exchange considers this to be a
materially high proportion. In addition, the Exchange does not deem itself to
be in a position to take the voluntary offer into account, as its outcome and
the position of the shareholders following its finalization remain unclear. 

Therefore, the Exchange rejects the request by Heimavellir hf. for the removal
of the Company's shares from trading on the Exchange's Main Market.

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