New Move by Saudi Arabia Could Increase Aramco IPO Over $2 Trillion

The government of Saudi Arabia cut the income tax paid by Saudi Aramco the national oil behemoth to smooth the initial public offering of the company next year, which most expect to be the largest equity sale in the world.

On Monday, a royal decree retroactive to January 1 set a rate of 50% for taxes for the company. Previously the oil giant paid taxes of 85%, plus a royalty of 20% levied during a different stage; the royalty was not mentioned in the royal decree.

This new step taken by the government appears to likely lower the tax burden of Aramco by billions of dollars, which could in turn make the company far more attractive to investors.

Authorities in Saudi Arabia were contemplating this change for a number of months, said sources. The royal decree was a milestone that sets the stage for the largest IPO in the world.

One industry analyst located in Dubai said that the move shows how serious the government of Saudi Arabia is about the Saudi Aramco IPO and it’s a strong message to the people who doubted the government would continue with its IPO for Aramco.

The Saudi government has a goal of selling as much as 5% of Aramco through listing shares in Riyadh as well as one or more foreign exchanges, to bring in cash for investment in other industries, due to the kingdom seeking to diversify the economy beyond its oil exports during this current era of less expensive crude.

Officials in Saudi Arabia predicted that the IPO would value the oil company at approximately $2 trillion or higher. Many analysts were skeptical and made estimates of less than $1 trillion, but a tax rate cut to 50% could help bring the value of the business to over $2 trillion.

As the largest supplier of crude to China, Saudi is attempting to rope in the oil companies in China as investors in the IPO.

Sinopec Corp announced the president of Aramco visited the company and both will hold talks related to the IPO.

The chairman of Sinopec told reporters that Aramco believes China to be a huge oil market. China is attractive to Aramco he said as the main driver for gas and oil demand growth.

They hope to involve Sinopec in their IPO, he added.

The government of Saudi Arabia, which has struggled to narrow a deficit in the budget because of inexpensive oil, obtains more than 60% of its income through oil, so the change in tax could affect its own finances.

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