* Tax on company cut to 50 percent from 85 percent
* Sends signal that government determined on offer
* Dividends expected to replace tax in state revenues
* Tax cut brings Aramco in line with global standards -CEO
* Sinopec says will have talks on IPO with Aramco
Saudi Arabia’s government has cut the income tax paid by national oil giant Saudi Aramco to smooth the company’s initial public offer of shares next year, which is expected to be the world’s largest equity sale.A royal decree on Monday, retroactive to Jan. 1, set a tax rate of 50 percent for the firm. Previously, Aramco had paid 85 percent tax, plus a 20 percent royalty levied at a different stage; the decree did not mention the royalty.
The step appeared likely to reduce Aramco’s tax burden by as much as tens of billions of dollars, which could make the firm much more attractive to private investors. Saudi authorities had been considering such a change for months, sources told Reuters.
“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.”
The government aims to sell up to 5 percent of Aramco, listing the shares in Riyadh and at least one foreign exchange, to raise cash for investment in new industries, as the kingdom seeks to diversify its economy beyond oil exports in an era of cheap crude.
Saudi officials have predicted the IPO will value the company at $2 trillion or more. Many private analysts have been sceptical, making estimates below $1 trillion, but a 50 percent tax rate could bring the offer closer to $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.
As the biggest crude supplier to China, Saudi is also trying to rope in China’s oil companies as IPO investors.
Sinopec Corp said Aramco president had visited the firm and both sides would have talks on the IPO.
“They (Aramco) believe China is a huge market. China attracts them as a main driver for oil and gas demand growth. They are hoping to involve us in the talk of the IPO,” Wang Yupu, chairman of Sinopec Corp, said during an earnings briefing in Hong Kong late on Monday. “For the next step, we will deepen our communication and cooperation.”
The Saudi government, which is struggling to close a budget deficit due to cheap oil that totalled $79 billion last year, obtains over 60 percent of its income from oil, so the tax change could affect its finances.
However, analysts said the measure might not have a big impact since tax revenue was expected to be replaced by dividend payments from Aramco. The firm has not revealed its post-IPO dividend policy.