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    Saudi Tax Cut To Sweeten Aramco IPO: Analysts

Summary

Analysts at GlobalData say Aramco's IPO will be more attractive as a result of a tax cut, but is unlikely to match the Saudis' expectations.

by: Mark Smedley

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Natural Gas & LNG News, Asia/Oceania, Carbon, Renewables, Corporate, Investments, News By Country, Saudi Arabia

Saudi Tax Cut To Sweeten Aramco IPO: Analysts

Faced with declining government revenues from oil since the price crash and looking to diversify its economy, Saudi Arabia is reportedly planning to list 5% of its state-owned oil giant, Saudi Aramco, in an initial public offering (IPO) in late 2018.

To make the listing more attractive by improving Aramco's cash flows, the government published a decree on March 27 slashing the company's tax rate from 85% to 50%, note analysts at GlobalData.

It said the 85% tax rate previously applied, combined with a 20% royalty, resulted in one of the most taxing regimes in the world, significantly depressing Aramco's cash flows. GlobalData says the tax cut reduces the fiscal take to 65%, bringing the operating environment into line with global averages.

However, it noted that, even taking into account the effect of this change, there is significant uncertainty over whether Aramco can achieve its much-vaunted US$2 trillion valuation. GlobalData’s full report is available via this link to its website.

Analysts prior to the tax cut had suggested the IPO will value 100% of Aramco at between one-quarter and half of Aramco's would-be $2 trillion.

Last May, Aramco CEO Amin Nasser said it plans to double its gas production to 23bn ft3/d in the next ten years but such expansion would likely require joint ventures. Last week in New York, Nasser said that long-term investment is its gas and oil was needed to meet the world's future energy demand.

Separately, as part of Saudi Arabia’s diversification strategy, energy minister Khalid al-Falih said April 17 that his country wants to produce 10% of its electricity from renewables by 2023, reiterating a call made in January for up to $50bn of foreign investment into the sector. He said that 30 solar and wind projects would be developed. Saudi Aramco has said it may be among bidders for such projects.

 

Mark Smedley