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Published: Wed, April 05, 2017
Economy | By Melissa Porter

Saudi Arabia's Tax Cuts Boost Aramco Value By $1 Trillion

Saudi Arabia's Tax Cuts Boost Aramco Value By $1 Trillion

The government is also preparing to list up to 5 percent of oil giant Saudi Aramco, an initial public offering that could raise as much as $100 billion. "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. The decision to cut the tax rate to 50% had been flagged earlier this year and is in line with the recommendation of Saudi Aramco's own management to the Saudi government.

Some estimations place the value of the potential IPO at nearly Dollars 2 trillion, potentially the biggest IPO in history.

King Salman decreed a new set of income tax rates on oil companies working in the kingdom, to range from 50 percent to 85 percent depending on the firms' investments, after it was 85 percent across the board.

This story has not been edited by Firstpost staff and is generated by auto-feed.

By cutting the taxes that Aramco pays, the Saudi government is opening the way for greater dividend payments, which should make Aramco's shares more attractive to investors when they are eventually put on sale.

"Assuming long-term oil prices averaging $75 per barrel, the valuation of the company increases from $0.4 trillion to $1.4 trillion", he said. The government would remain the company's largest shareholder.

Talks are ongoing between the companies known as Sinopec and Saudi Aramco, Wang Yupu, chairman of the Chinese refiner, said on Monday.

"The total value of Saudi Aramco's revenue after costs is around $3.4 trillion".

"This Royal Order on tax for oil and hydrocarbon producers operating in the Kingdom brings the Kingdom of Saudi Arabia in line with worldwide benchmarks", said Saudi Arabia's Energy Minister Khalid Al-Falih in a statement.

A Saudi Aramco spokesman declined to comment.

A tax change this week in Saudi Arabia boosts the upstream value of Saudi Aramco by $1 trillion, according to research at Rystad Energy. Saudi oil companies valued at between 375 billion and 300 billion riyals, will pay 65% income tax, those at between 300 billion and 225 billion riyals will pay 75% and any company below that threshold will continue to pay 85%.

He said that any reduction in tax returns that might occur due to this decree will be compensated by distributing profits by state-owned companies and other income sources.

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