* Rare success story for a U.S. buyout firm in Russia
* Opportunity for TPG, VTB, EBRD to sell down stakes
* Listing could raise $1 billion - sources
MOSCOW, Feb 3 (Reuters) - Russian hypermarkets retailer Lenta is to list its shares in London, the company said on Monday, potentially raising at least $1 billion and tapping the demand from investors for consumer-focused businesses buoyed by Russia's rising middle class.
Such businesses have proven popular for overseas investors with Russia's second largest telecoms company Megafon floating in London 2012, with the share price now 50 percent higher than its flotation price.
On Monday a unit of U.S. investment bank Goldman Sachs said it had raised its stake in a Russian chain of fitness clubs, World Class, to 50 percent from 12.5 percent.
"Consumer demand may be (slowing down), but this doesn't ... change the investment thesis - it just makes the bar a little higher and we're still bullish on the long-term picture across the cycle," said Maxim Klimov, head of Goldman's European Special Situations Group in Russia.
Meanwhile Lenta reported a 38 percent rise in net profits last year to 7.1 billion roubles ($202 million), on sales up 31 percent at 144.3 billion roubles, but the IPO comes at a time when Russia's economy is faltering and a slide in the rouble is raising fears of a spark in inflation.
"Lenta should attract sufficient investment demand, it is a sizeable placement but a lot will depend on the valuation," said Natasha Zagvozdina, head of research at Verno Capital. "Lenta is the right company in the right sector."
Lenta's chief executive Jan Dunning said the retailer's focus on promotions and selling Russian products gave it resilience.
"We believe that our customer proposition is quite a universal one and will help, if needed, to guide us through any economic slowdown," said Dunning.
While Lenta did not disclose the size of the deal, sources familiar with the matter previously said Lenta was talking to banks about a listing which could raise at least $1 billion and could command a valuation of over $5 billion.
Lenta said U.S. Private equity firm TPG, which owns a 49.8 percent stake, would be selling some of its shares, as will the European Bank for Reconstruction and Development, which holds 21.5 percent, and Russian bank VTB, which owns 11.7 percent.
Lenta's listing opens a way out for TPG from what has proven a troubled but profitable investment and would prove a rare success story for a U.S. buyout firm in Russia - most have shied away from the country due to concerns over corruption and corporate governance.
TPG's own experience at Lenta did little for Russia's image when a disagreement over strategy with U.S. businessman August Meyer, who owned 41 percent, led to Dunning being ousted in favour of Meyer's nominee Sergei Yushenko.
TPG, VTB and the EBRD refused to recognise the change and in late 2010 Dunning, accompanied by armed guards, tried to enter Lenta's offices only to be stopped by Lenta's own security guards, according to witnesses at the time.
Meyer later sold his stake to TPG and VTB, and Dunning was reinstated.
Despite the troubles, the IPO could give TPG a return that could rank as one of its best emerging market deals, according to a source familiar with the situation.
The amount that TPG and VTB invested in Lenta has not been disclosed but a banking source in 2009 told Reuters that the pair bought a 35.4 percent stake for $115 million. That would have valued the whole company at around $325 million - meaning it has grown in value by 15 times since the original investment.
There was some concern, however, that there will be no money raised for the company. Uralsib analyst Marat Ibragimov said it was not a positive factor that no new shares are being sold and that proceeds will not be used for the company's development.
Lenta will also be competing for investor attention with German retailer Metro AG, which plans to sell up to a quarter of its Russian cash-and-carry unit in a London listing to raise funds for investment and pay down debt.
Metro's listing, set for the first half of 2014, is expected to raise at least 1 billion euros ($1.36 billion).
Dunning said Lenta plans to double its selling space over the next three years, although rivals have shown a slowdown in growth as consumer sentiment in Russia falters. Magnit and Dixy both reported a sharp slowdown in their sales growth in December and Magnit and O'Key have also said sales might increase at a slower pace this year than last.
One of the bookrunners values Lenta's equity at $5.3-6.2 billion, a financial market source said, implying a valuation lower than Magnit's but higher than O'Key's.
Lenta's London shares will trade as global depositary receipts (GDRs) and it intends to trade shares in Moscow. There is an over-allotment option for bookrunners to buy additional GDRs representing up to 15 percent of the shares sold.
The banks advising on Lenta's IPO are JP Morgan Chase & Co , Credit Suisse, UBS, Deutsche Bank and VTB. TPG Capital is acting as a co-manager while Rothschild is acting as financial adviser to Lenta.