by John Micklethwait and Javier Blas
Saudi Arabia has promised it will reduce the overall tax rate paid by its national oil company to make its 2018 initial public offering — potentially one of the largest in history — more appealing to investors.
“Definitely the fiscal regime will be changed,” Saudi Arabian Oil Co. Chief Executive Officer Amin Nasser said in a Bloomberg Television interview on Tuesday in Davos, Switzerland. “When you look at the fiscal regime and the taxes, it has to be aligned with other listed companies.”
Aramco, as the company is commonly known, currently pays a 20 percent royalty on its revenue plus an 85 percent tax on income, Nasser said. He declined to say what tax rate the kingdom is considering.
Saudi officials said Aramco’s tax rate wouldn’t need to be slashed because the company — considered the crown jewel of the country’s economy — is able to make a profit even when oil prices plunge. In 2016, under the existing tax regime and with crude dipping to 12-year lows, Aramco was able to pay a dividend and fund its biggest-ever capital investment program, Nasser said.
“Based on the advice of the different banks that we use during the process of the IPO, we are setting a certain fiscal regime that will meet investors’ requirements,” Nasser said.
Saudi Arabia is looking at markets including Hong Kong, London, New York and possibly even Canada as international venues for the sale. The kingdom will offer 5 percent of the world’s biggest oil producer as part of a plan by Deputy Crown Prince Mohammed bin Salman to set up a giant biggest sovereign wealth fund and help reduce the economy’s reliance on hydrocarbons.
Nasser said the kingdom was considering whether to do a double listing, with shares sold in the domestic market in Riyadh and a foreign exchange, or a triple-listing, with two foreign locations on top of the local bourse.
In his most extensive comments yet about the IPO plans, Nasser said the Aramco IPO will include the so-called concession, which comprises the oil and gas reserves of the kingdom. Saudi Arabia sits on about a fifth of the world’s reserves.
“The listing is based on Saudi Aramco maintaining the concession,” Nasser said. “If you have the concession, you have the physical oil.”
The concession dates from 1933, when King Abdulaziz, the founder of modern Saudi Arabia, granted it to an American company. Riyadh nationalized Saudi Aramco, which at one point was owned by the companies that are today Exxon Mobil Corp and Chevron Corp., in a series of deals from 1973 to 1980.
Nasser said the IPO will take most likely in the second half of 2018, narrowing the window from earlier comments by Saudi officials who said a flotation was planned for some point through 2018.
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In the past, Saudi officials have said the flotation would value the company at as much as $2 trillion — which, if true, will make it the world’s most valuable. Selling just five percent could raise $100 billion, ranking it as the IPO the biggest ever. However, some investors have cautioned that Aramco is unlikely to be worth as much, noting that other national oil companies that have sold shares have achieved relatively low valuations.
Nasser said that Aramco wasn’t planning as yet to increase its production capacity, currently at about 12 million barrels a day, saying the matter would be decided after the IPO. The company has “ample” spare capacity to meet any incremental demand, he added.
Instead, Nasser said the focus is in expanding the company’s refining capacity to 8 million to 10 million barrels a day, up from 5.4 million barrels a day currently. Saudi Arabia invested in the 1980s in refineries in the U.S. and more recently has been spending money in South Korea and Indonesia.
“This is an area of interest for us: expand our refining capacity globally and also our petrochemicals,” he said.