Saudis announce new tax rate for Aramco amid plans for IPO

Miranda GreerMar 29, 2017

Saudi Arabia on Monday dropped the tax rate on its oil industry, marking a significant move to lay the groundwork for a highly anticipated initial public offering of its state-owned energy company, Saudi Aramco.

Others remain sceptical about the prince's plans to shift the country away from its reliance on oil due to general lethargy in government and conservative attitudes at large.

The Saudi government said it is cutting the tax on hydrocarbon companies from 85 to 50 percent through a royal decree, a move the kingdom said reflects efforts to diversify its economy and lessen dependence on oil revenues. "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.

"By drastically reducing the tax rate, more cash will go to the potential owners of Saudi Aramco compared to the government", said Espen Erlingsen, vice-president for analysis at Rystad Energy, an oil and gas consulting service based in Oslo and NY.

Aramco Chief Executive Amin Nasser said in a statement that the tax cut would help Aramco develop by bringing the company in line with global benchmarks.

"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. China's e-commerce business Alibaba Group Holding Ltd. has claim to the world's biggest IPO to date after raising $25 billion in 2014.

Saudi Arabia has begun talks with possible cornerstone investors in the share sale.

The government plans to list the shares in Saudi Arabia and at least one foreign stock exchange, with candidates including London, New York, Tokyo, Singapore and Hong Kong.

Talking to CNN in January, CEO Nasser said that the oil giant's IPO is on track for 2018. Advisers JPMorgan Chase & Co., Moelis & Co. and independent consultant Michael Klein stand to earn millions of dollars in fees. Aramco is seeking to raise about $2 billion in its debut sale of Islamic bonds under a 37.5 billion-riyal ($10 billion) program, people with knowledge of the matter said this month.

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