Saudi Arabia said to mull Aramco’s final shape ahead of IPO

Saudi Arabia is considering two options for the shape of its giant oil producer, Saudi Aramco, ahead of the planned initial public offering (IPO) in 2018; either as a global industrial conglomerate or a specialized international oil and gas producer, Reuters reported, citing unnamed industry and banking sources.

Aramco was originally planned to be transformed into a global industrial conglomerate from an oil-producing company in June 2016, when the kingdom unveiled a plan to list the shares of the state-owned firm.

"There are two options being studied now. Either to make Aramco a pure oil and gas company, or a conglomerate and expand its role in petrochemicals and other sectors," an unnamed Saudi industry source said.

Meanwhile, an Aramco spokesperson declined to comment.

In light of Saudi Aramco’s complicated assets, the kingdom is also mulling "clean-up exercise" to make Aramco's structure neater, a banking source familiar with the IPO preparations said.

Saudi Aramco’s non-oil businesses are likely to be moved to a separate entity before the floatation.

In addition to the possible legal problems that might arise from floating a huge-sized stake in the state-owned company, Aramco’s offering will run into some complexities that have not been yet resolved, mainly the applicable tax regime.

Deputy Crown Prince Mohammed bin Salman had earlier expected the IPO would value Aramco at a minimum of $2 trillion.

However, the current 20 percent royalty and 85 percent tax paid by Saudi Aramco to the government could lower its value in the IPO.

Talks are ongoing to cut this tax to 50 percent, though this move will likely hurt state revenues at a time, the sources added.

Meanwhile, the kingdom is still finalizing how to value the upstream and downstream oil businesses of Aramco, which will remain part of the company.