UPDATE 2-AEI cancels IPO hours after slashing its size

* AEI first IPO to be cancelled in 2009

* AEI had lowered expected IPO proceeds to $262.5 mln

* AEI owners had expected $500 mln, cut to $12.5 mln (Adds IPO's cancellation, analyst quote)

By Phil Wahba

NEW YORK, Oct 29 (Reuters) - Energy company AEI, AEI.N a former Enron unit that operates power and gas distribution lines in Latin America, canceled its IPO on Thursday, hours after it had slashed the size of the deal two-thirds in the face of weak demand.

The IPO, which was managed by Goldman Sachs & Co (GS.N) Credit Suisse (CSGN.VX), Citi (C.N) and JPMorgan (JPM.N) had been originally scheduled to price on Wednesday, but was postponed by a day while the underwriters and AEI changed the terms of the deal.

It is the first U.S.-listed IPO this year to be withdrawn after an attempt to price the offering.

No reason was given for the cancellation by the underwriter, but analysts had expressed concerns about the company's debt load and its exposure to political and operational risk because of its presence in 19 countries. [ID:nN28320322]

There was also concern that under the original terms of the IPO, the company was not getting enough money compared to its backers.

"The private equity owners were getting too much in the IPO, leaving a paltry amount for AEI to pay off some debt," said Scott Sweet, a senior managing partner at advisory firm IPO Boutique.

The size of the deal was slashed by two-thirds with the owners deciding to sell 1 million shares, rather than the 33.3 million shares under the original plan, and expected proceeds to the owners falling to $12.5 million from $500 million.

AEI and its backers had earlier on Thursday decreased the overall size of the offering to 21 million shares, from 50 million shares, and lowered the price range to between $12 and $13 from an earlier range of $14 to $16. Expected total proceeds fell to $262.5 million from $750 million.

"There was such bad will that the institutions as well as retail doors were not open-- they were not open to hearing the story again," Sweet said.

AEI's shareholders include funds that have invested through Ashmore Investment Management Ltd, part of Ashmore Group Plc (ASHM.L), which bought the former Enron International unit in 2006. AEI's CEO James Hughes worked at Enron for nearly 10 years.

The company has a total of 4.9 million electric power customers and its assets include nearly 120,000 miles of power distribution and transmission lines and power generation capacity of 2,181 megawatts; it operates in 19 countries.

AEI, based in the Cayman Islands but with a main U.S. office in Houston, also operates natural gas pipelines and service stations. Brazil and Columbia account for 70 percent of its 2008 operating income.

AEI's IPO would have beem the first U.S.-listed new offering by a traditional energy company since May 2008, when Western Gas Partners LP (WES.N) raised $343.4 million, according to Thomson Reuters data.

For the six months ended June 30, AEI had revenue of $3.7 billion, a drop of 19.6 percent from the year-earlier period, and earned a profit of $221 million.

(Reporting by Phil Wahba, editing by Gerald E. McCormick)