SAUDI SELL ARAMCO
FT - Saudi Arabia has slashed the tax rate for state energy company Saudi Aramco as the company woos private investors and seeks the highest possible valuation ahead of its planned initial public offering in 2018.
A royal decree on Monday reset the income tax rates for producers of hydrocarbons in the kingdom. The rate for the largest ones, including Saudi Aramco, fell to 50 per cent from 85 per cent. The tax change is retroactive to January 1.
The new fiscal regime did not directly name Saudi Aramco, but it appeared designed to ease the path of the 5 per cent sale of the company, which is the world's largest oil producer.
Saudi officials believe Saudi Aramco is worth $2tn but energy analysts have warned that the company's high tax rate, which comes on top of 20 per cent royalty payments to the government, makes it less attractive to investors than international rivals.
Amin Nasser, Saudi Aramco's chief executive, said: "The new tax rate will bring Saudi Aramco in line with international benchmarks."
The company had recommended a 50 per cent rate to the kingdom's highest authorities earlier this year, said one person familiar with the discussions.
The move to reduce the company's tax burden comes as Saudi Aramco rewires its financials so that it can more closely resemble other international oil companies.
Since announcing in early 2016 that it planned to list, Saudi Aramco has engaged in a vast untangling of its accounts, separating the revenues it earns from its core business from other projects it conducts for the government.
The company is not only an oil and gas producer but also works as an effective arm of the state, building schools, hospitals and sports stadiums.
Saudi Aramco's top ranks want the company to run its accounts as they would function after the IPO for at least a year before any offering, two people briefed on the planning have said. Saudi Aramco is also preparing to give investors unprecedented access to its financial numbers, information that had previously been regarded as secret.
The IPO forms the centrepiece of a government plan to overhaul Saudi Arabia's economy and diversify away from oil, the precious resource it has been reliant on for decades. Proceeds from the IPO would be ploughed into non-oil sectors.
If Saudi Aramco achieves half the valuation that Saudi officials expect, it would still be the world's biggest ever flotation.
Despite the lower tax rate, the government will still receive money from Saudi Aramco, on top of the royalty payments, because it is the company's largest shareholder and be entitled to its share of any dividends.
Mohammed Al Jadaan, minister of finance, said: "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."
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