UPDATE 2-MegaFon says to launch London share sale

* MegaFon to complete IPO in fourth quarter

* Offer likely to raise around $2bln-sources

* MegaFon says Russia focus is key advantage

* Goldman not on list of lead underwriters

(Adds quotes from MegaFon CEO, background on IPO market)

By Megan Davies and Maria Kiselyova

MOSCOW, Oct 9 (Reuters) - Russia's second-largest mobilephone operator MegaFon , controlled by the country'srichest man Alisher Usmanov, is going ahead with an initialpublic offering in London that could be the biggest by a Russiancompany since last year's flotation of internet firm Yandex.

The IPO, to be completed this quarter, will give investorsthe chance to buy into a purely Russian-focused phone companythat is outpacing rivals such as Vimpelcom in a rapidlygrowing home market.

TeliaSonera will sell part of its stake in MegaFonvia the listing, which is set to give the Nordic telecoms groupa big payback on a 2001 investment in the Russian company.

"One of the things that really differentiates us from anypeers is that we are a pure Russian player," MegaFon CEO IvanTavrin said in an interview. "We are absolutely focused onRussia. About 99 percent of our revenues come from thiscountry."

The size of the sale is likely to be around a 15 percentstake, a source familiar with the matter said. This is smallerthan the 20 percent originally expected, showing that MegaFon isfinancially strong and does not need to raise much capital.

Proceeds may total up to or around $2 billion, down fromearlier estimates of around $3 billion, two sources familiarwith the deal said. That would give MegaFon a valuation ofaround $13 billion.

An IPO of that size would be bigger than Yandex's $1.43billion New York IPO last year and around the same size asRusal's $2.2 billion 2010 Hong Kong IPO.

MegaFon did not give the size of the offering, which is alsolikely to include a small component on Moscow's stock exchange.

"I think MegaFon could (potentially be) the most interestinginvestment in that sector," said Bruce Bower, a portfoliomanager at Moscow-based fund manager Verno Capital.

Bower said MegaFon had the best subscriber growth, the mostclear data strategy, had rolled out fourth generation servicesahead of rivals, and has a "much cleaner story" than rivalsVimpelcom - which expanded outside Russia - and MTS -which had problems with its operations in Uzbekistan.

"The Russia focus is also a huge differentiator," he said.

The IPO is the second part of a restructuring of the companyearlier in the year, in which Usmanov took control of MegaFonthrough buying shares from tycoon Mikhail Fridman andTeliaSonera, ending years of shareholder infighting. Usmanov nowcontrols 50 percent and one share.

MegaFon said both TeliaSonera and MegaFon would sell sharesin the IPO, without saying how many. TeliaSonera had beenexpected to sell a 10.5 percent stake and MegaFon 9.4 percent.

The Nordic firm invested 1.2 billion Swedish crowns ($177million) in MegaFon in 2001, and has in the past said that aMegaFon IPO would yield a "fantastic" return on its investment.

Teliasonera said in a statement it planned to reduce itscurrent 35.6 percent ownership but would still keep a stake ofat least 25 percent plus one share in MegaFon after the IPO.

MegaFon said it plans to use the proceeds to repay debts.

Tavrin said MegaFon's capital spending would decline thisyear as a percentage of sales to around 20 percent from 28-29percent last year, with the aim to reduce this rate further.

He also said that the IPO would require changes in itsboard, which will have two independent directors, threerepresentatives of Usmanov's AF Telecom and two fromTeliaSonera. "We will adhere to the highest standards ofcorporate governance," he said.


Factbox on Russia's largest IPOs:

Factbox on Russia's main telecoms operators:

Graphic on Russia's telecoms market

Profile on Usmanov: Interview with Usmanov

Analysis on MegaFon IPO plans:



The European new issues market has had a revival of sharesales over the last month, after a long period of inactivity, asign of improved investor sentiment that has encouraged firms totest the water.

A number of Russian companies have been jostling to raisemoney. Russia just sold a stake in the country's largest bankSberbank for more than $5 billion, while privatehealthcare group MD Medical announced plans to list in London.

Last week, German insurer Talanx successfullycompleted a stock market debut in Frankfurt. Other Londonlistings include UK insurer Direct Line.

But the market is still not wide open. Investors are choosy,focused on companies with strong growth prospects, good earningsand seeking valuations which are not too ambitious.

GOLDMAN ABSENCE MegaFon said that Morgan Stanley and Sberbank

had been appointed joint coordinators for the IPO,with Citi , Credit Suisse and VTB asjoint bookrunners.

The list did not include Goldman Sachs , which hadbeen lined up to be one of the lead banks for the IPO, sourcespreviously said.

Goldman was not listed by MegaFon as working on the deal.Goldman Sachs declined comment when asked about the reason.

"It's a great mix of both Russian and international names,"said Tavrin, who did not comment when asked why Goldman's namewas not there. "We have five names and these are the banks wechoose to work with today."

Goldman had backed away from the 2009 Hong Kong IPO ofRusal. The bank was originally a bookrunner for the IPO, sourcessaid at the time. However, it withdrew when Rusal filed itslisting application to the two stock exchanges, Thomson Reuterspublication IFR reported at the time.

(Reporting by Megan Davies; additional reporting by MariaKiselyova, Kylie MacLellan in London and Simon Johnson inStockholm; Editing by Douglas Busvine and Jane Merriman)

((megan.davies@thomsonreuters.com)(+7 916 391 8262))