Saudi Aramco valuation topping $1 trillion after tax cut

DUBAI (Bloomberg) -- Saudi Aramco could have a market value of more than $1 trillion, Sanford C. Bernstein & Co. estimates, after the government slashed the oil producer’s tax burden to attract investors ahead of what may be the world’s biggest initial public offering.

The tax cut will increase Aramco’s net income by 300%, putting its per-barrel income in a range similar to that of international oil companies including Exxon Mobil Corp., Bernstein analysts said in a report. A production-weighted valuation on a par with such companies could give Aramco, known officially as Saudi Arabian Oil Co., a market value of $1 trillion to $1.5 trillion, the analysts said.

The Saudi government announced Monday it’s reducing Aramco’s tax rate to 50% from 85%, as it prepares to offer investors as much as 5% of the world’s biggest oil exporter. Estimates of Aramco’s potential valuation vary widely. Deputy Crown Prince Mohammed bin Salman has said it’s worth about $2 trillion, while consultant Wood Mackenzie Ltd. valued the company last month at around $400 billion, according to clients who attended a private briefing.

“Before the reduction in tax, it was hard to argue that Aramco should trade at an equivalent value to Western oil peers,” Bernstein analysts Neil Beveridge and Oswald Clint said in the report. “With the reduction in tax to 50%, profitability per barrel is more in line” with those peers, and could be higher, they said.

The sale of a 5% stake in Aramco at a $1 trillion valuation would raise $50 billion dollars for Saudi Arabia, which is trying to reform and diversify its oil-dependent economy. China’s e-commerce business Alibaba Group Holding Ltd. has claim to the world’s biggest IPO to date after raising $25 billion in 2014.