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 mobile phone operator MegaFon , controlled by the country's richest man Alisher Usmanov, is going ahead with an initial public offering in London that could be the biggest by a Russian company since last year's flotation of internet firm Yandex .

The IPO, to be completed this quarter, will give investors the chance to buy into a purely Russian-focused phone company that is outpacing rivals such as Vimpelcom in a rapidly growing home market.

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

"One of the things that really differentiates us from any peers is that we are a pure Russian player," MegaFon CEO Ivan Tavrin said in an interview. "We are absolutely focused on Russia. About 99 percent of our revenues come from this country."

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

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

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

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

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

Bower said MegaFon had the best subscriber growth, the most clear data strategy, had rolled out fourth generation services ahead of rivals, and has a "much cleaner story" than rivals Vimpelcom - 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 company earlier in the year, in which Usmanov took control of MegaFon through buying shares from tycoon Mikhail Fridman and TeliaSonera, ending years of shareholder infighting. Usmanov now controls 50 percent and one share.

MegaFon said both TeliaSonera and MegaFon would sell shares in the IPO, without saying how many. TeliaSonera had been expected to sell a 10.5 percent stake and MegaFon 9.4 percent.

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

Teliasonera said in a statement it planned to reduce its current 35.6 percent ownership but would still keep a stake of at 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 this year as a percentage of sales to around 20 percent from 28-29 percent last year, with the aim to reduce this rate further.

He also said that the IPO would require changes in its board, which will have two independent directors, three representatives of Usmanov's AF Telecom and two from TeliaSonera. "We will adhere to the highest standards of corporate 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 share sales over the last month, after a long period of inactivity, a sign of improved investor sentiment that has encouraged firms to test the water.

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

Last week, German insurer Talanx successfully completed a stock market debut in Frankfurt. Other London listings include UK insurer Direct Line.

But the market is still not wide open. Investors are choosy, focused on companies with strong growth prospects, good earnings and 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 as joint bookrunners.

The list did not include Goldman Sachs , which had been lined up to be one of the lead banks for the IPO, sources previously 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 name was not there. "We have five names and these are the banks we choose to work with today."

Goldman had backed away from the 2009 Hong Kong IPO of Rusal. The bank was originally a bookrunner for the IPO, sources said at the time. However, it withdrew when Rusal filed its listing application to the two stock exchanges, Thomson Reuters publication IFR reported at the time.

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

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