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. Laura Frykberg reports.
It's known as the kingdom's crown jewel. But even the most prized assets need a polish before they're ready for sale. Saudi Arabia has given its oil giant, Aramco, a tax cut ahead of next year's IPO. Instead of paying 85 percent it'll now pay just 50. In a bid to reduce the company's tax burden by as much as ten billion dollars. (SOUNDBITE) (English) CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN, SAYING: "Tax cuts will lead to an improvement in reported earnings and a reported improvement in dividend paying capabilities. Both of which will support a stronger valuation of Aramco." Over 60 percent of Saudi Arabia's income comes from oil. The drop in prices has forced it to diversify its earnings. The Aramco IPO would see 5 percent offered to investors - with shares listed in Riyadh and at least one foreign exchange. If successful, it would be the world's largest equity sale. (SOUNDBITE) (English) CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN, SAYING: "I think this is signaling an appetite to have Aramco on the same footing as most international oil majors. We should also bear in mind that of course only five percent of the company is being floated, and if there are increased dividend flows they will go back to the very self-same body that is taking reduced tax take. So I think this is a sassy move rather than any signal of problem for Aramco." And when it comes to potential investors, it's also playing a shrewd game. It's looking to China - which relies on Saudi for more crude oil than any other country.