RPT-UPDATE 4-Santander may raise up to $8.6 bln from Brazil IPO

(Repeats to widen distribution, with no change to headline or story)

* Santander to raise up to $8.62 billion with Brazil IPO

* IPO price reflects outlook for Brazil growth-analyst

* Santander Brasil to begin trading Oct. 8 in Sao Paulo (Recasts, adds Sao Paulo dateline, Brazil credit growth)

By Judy MacInnes and Elzio Barreto

MADRID/SAO PAULO, Sept 21 (Reuters) - Spain's biggest bank Santander (SAN.MC) could raise as much as 15.6 billion reais ($8.62 billion) with an initial public offering of its Brazilian unit, which may be the biggest in the world this year, underscoring expectations of booming credit demand in Latin America's largest economy.

Banco Santander's Brazilian unit filed on Monday to sell 525 million units in New York and Sao Paulo, with each unit representing 55 common shares (SANB3.SA) and 50 preferred shares (SANB4.SA), according to the prospectus for the offering.

The bank will offer the units at a price of 22 reais to 25 reais each, with final pricing due on Oct. 6.

The offering might rise by 100 million units if underwriters exercise their option to sell additional shares to meet demand.

Banks in Brazil have benefited from the relative strength of the nation's commodity-driven economy through the financial crisis, and from their focus on domestic lending rather than on more troubled markets abroad.

Still, the price of the share sale, could deter some investors as it values the Brazilian unit at higher multiples to earnings than its rivals.

Santander Brasil may be pricing its offering aggressively, data from IPO advisory firm IPO Boutique suggest.

Using 2009 earnings, IPO Boutique estimates Banco Santander has a price-earnings valuation of 21.67 at the midpoint range of $13, higher than those of rivals Banco Bradesco (BBDC4.SA), at 18.26, and Itau Unibanco (ITUB.N), at 16.71.

The high price of the Santander Brasil IPO reflects expectations about lending growth in the coming years as the economy exits a recession, said Joao Augusto Frota Sales of the Lopes Filho financial consultancy in Rio de Janeiro.

Brazil's central bank in August increased its forecast for credit growth in 2009 to 16 percent from a previous estimate of 14 percent and analysts expect record-low borrowing costs and fast growth in the economy to stoke demand for consumer credit in the years ahead.

"We have to see the price of the offering given the outlook for 2010, 2011 when the perspectives for Brazil's credit markets are very good," Frota Sales said. "It's not cheap, but it's in line with expectations for Brazil's financial system as a whole."

Banco Santander will be the lead manager of the offering, with Credit Suisse, Merrill Lynch and BTG Pactual also helping underwrite the stock sale.

The IPO would be the biggest in Brazil's history, topping a previous record set in June when credit card company VisaNet VNET3.SA raised 8.4 billion reais. It also would be the largest IPO on a U.S. exchange since Visa Inc's (V.N) $19.5 billion offering in March 2008.

IPO MOMENTUM

Momentum in the IPO market has been building in recent weeks. This week is slated to be the busiest for initial offerings in the United States in almost two years, with eight deals on deck to raise a combined $3.5 billion.

The week of Oct. 5, when the Santander offering is slated to come to market, may now be the biggest in capital raising in the United States in 18 months.

The deal would boost Santander's finances as regulators impose tighter controls on the banking sector and will follow recent moves by Spanish peers BBVA (BBVA.MC) and Popular (POP.MC) to strengthen their capital bases.

The units will trade on the Sao Paulo stock exchange under the symbol (SANB11.SA).

Analysts with Portuguese investment firm Banco BPI, said in a research note the offering could "have a positive impact of about 78 and 88 basis points on Santander's capital ratios."

The eurozone's biggest bank's core capital ratio stood at 7.5 percent at the end of June.

The response by investors to the Brazilian share offering will show if Santander's early expansion in the country -- seen as more attractive at this point than other Latin American markets -- is paying off.

"Brazil might soon be the new flagship of the group, accounting for 27 percent of its value in 2011," said Evolution Securities bank analyst Arturo de Frias Marques.

BPI said that the return on equity for Santander's Brazilian operations was 25.7 percent at the end of June.

Santander's Brazilian unit had 2.45 billion reais in profits in the first half of 2009, compared with pro-forma net income of 2.17 billion reais in the same period a year earlier, the prospectus said.

The bank plans to use 70 percent of the proceeds from the offering to open new bank branches, install new automated teller machines and increase lending to Brazilian consumers, according to the prospectus.

The Brazilian unit will use 20 percent of the funds to improve its funding structure, while 10 percent of the proceeds will be used to increase its Basel capital requirements.

Once the Brazil listing is completed, with the shares due to start trading on the New York Stock Exchange on Oct. 7 and on the Sao Paulo exchange Oct. 8, Santander Brasil's free float will be 15.6 percent, excluding a "green shoe" of additional shares which may be offered depending on demand.

Santander shares closed 0.5 percent lower at 11 euros, compared with a 0.42 percent drop in Spain's blue chip IBEX-35 index .IBEX and a 1.6 percent fall in European banks .SX7P. ($1=1.809 reais) (Additional reporting by Phil Wahba in New York; editing by Carol Bishopric)