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Saudis announce new tax rate for Aramco amid plans for IPO

Saudis announce new tax rate for Aramco amid plans for IPO

The Saudi Arabian Oil Co, known as Saudi Aramco, plans to sell as much as 5% of the company in an IPO next year that the kingdom estimates could value the business at more than US$2 trillion.

"This tax change has a huge impact on the valuation of Saudi Aramco".

"The royal decree falls in line with an earlier promise that Saudi Arabia will reduce the overall tax rate paid by its national oil company to make its 2018 initial public offering - potentially one of the largest in history - more appealing to investors", John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh, said in an emailed statement.

"Assuming long-term oil prices averaging USD 75 per barrel, the valuation of the company increases from USD 0.4 trillion to USD 1.4 trillion", he said in a report. "Going forward, based on our own reality and needs, we will get into more detailed conversations with them". "By drastically reducing the tax rate, more cash will go to the potential owners of the Saudi Aramco compared to the government", said says Espen Erlingsen, VP Analysis at Rystad Energy. Aramco's reserves are estimated at about 260 billion barrels.

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The company's oil production is Saudi Arabia's main source of revenue and its finances are not publicly disclosed. The reduction in Aramco's tax rate is likely to be "budget neutral", said Monica Malik, chief economist of Abu Dhabi Commercial Bank. The share sale, if it meets the government's estimate, would dwarf that of Alibaba.

That is good news for the Saudi government, which hopes to raise money to cover a United States dollars 79 billion budget deficit and invest in new industries as it tries to diversify the economy in an era of low oil prices. Global demand for oil will peak before then, according to projections by Royal Dutch Shell Plc, as alternative fuels and electric cars gain in popularity.

"This move carries strategic benefits for Saudi Arabia, its citizens and future generations", Mr. Jadaan said in a news release. The company is selling debt in a private placement at 25 basis points over the country's interbank offered rate, the person said, asking not to be identified as the information is private.

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