By March 27, 2017 Read More →

Aramco IPO deal sweetened with tax cut by Saudi government

Aramco IPO

The Saudi Aramco IPO is expected to be the largest in the world. photo. 

Aramco IPO: Up to 5 per cent of kingdom’s oil giant

Saudi Arabia has cut income tax rates paid by its state-run oil company Saudi Aramco, giving investors more incentive to buy into the proposed Aramco IPO next year.

Reuters reports the royal decree issued on Monday and retroactive to Jan. 1, set the firm’s tax rate at 50 per cent.  Previously, Aramco had paid 85 per cent tax, and a 20 per cent royalty which was levied at a different stage.  The royal decree did not mention the royalty.


The move will likely reduce Saudi Aramco’s tax burden by tens of billions of dollars, making the company much more attractive to investors.  Sources told Reuters the kingdom had been considering the changes for months.

Aramco chief executive Amin Nasser said the tax cut would help the company develop by brining it in line with international benchmarks.

“The royal order is a milestone in setting the stage for the world’s biggest IPO. I am sure there will be more such moves to follow in coming weeks and months,” an oil industry executive said.

“It shows the Saudi government is serious about the IPO of Saudi Aramco, and this is a very strong message to those who doubted that the government will follow through on taking Aramco public.”

According to industry executives, the IPO will help the company expand its business in line with market principles and form partnerships with private-sector companies around the world.

The Aramco IPO will sell up to 5 per cent of the oil giant.  Shares will be listed in Riyadh and at least one foreign exchange.  Money raised in the sale will be used by the kingdom to diversify its economy away from oil exports.

Saudi officials say the IPO will value the company at $2 trillion or more, double the estimates of many private analysts.  Those same analysts now say that with the tax reduction, the value may be bumped up, closer to company’s own estimate of $2 trillion.

“This move carries strategic benefits for Saudi Arabia, its citizens and future generations,” Finance Minister Mohammed al-Jadaan said in a statement about the tax cut.

The tax cut will likely affect kingdom’s government finances as the Saudi government struggles to close a budget deficit of $79 billion last year after two years of low oil prices.

But, analysts told Reuters that the measure may not have a big impact since the lost tax revenue was expected to be replaced by Aramco dividend payments.

“Any tax revenue reductions applicable to hydrocarbon producers operating in the kingdom are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments,” Jadaan said.

In a statement to Reuters, Jadaan said the 2017 state budget had been prepared with the tax change in mind, adding government revenues and public services would not be affected.

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