CORRECTED - Build America Bonds gearing up for world stage

(Corrects name to Prudential Financial in 10th paragraph)

NEW YORK Dec 1 (Reuters) - After shaking up the U.S. taxable debt market for the last eight months, Build America Bonds are slowly attracting the attention of investors from other countries.

Washington State Treasurer James McIntire told a meeting of state treasurers in New York on Tuesday that he has had interest in the bonds from Europe and Asia.

"I know that we had the Chinese in our office last month and we're certainly going to reach out to them again," he said.

Created through the U.S. government's stimulus plan to help pull the economy out of recession, BABs are taxable bonds that give issuers a federal subsidy equal to 35 percent of interest costs. The bonds are intended to be used for infrastructure projects.

James Esposito, managing director and global head of investment grade financing and syndication at Goldman Sachs, said BABs now make up 30 percent of new issues of taxable bonds issued in the United States with maturities of 20 years or more.

"We haven't yet seen the type of demand from international buyers we thought we would have seen," Esposito told the treasurers.

But Goldman is educating its international sales force about the bonds in anticipation of more interest.

"We're starting to see an offshore investor base develop," he said. This time next year, "we'll have much more encouraging things to report on the international buyer base."

Peter Clarke, managing director and vice chairman of tax-exempt capital markets for J.P. Morgan, said he had seen international interest in the debt, which typically pays higher interest than tax-exempt bonds, but only from a "handful" of buyers.

Clarke said lead BABs buyers so far have been institutional investors with large holdings of tax-exempt debt, particularly insurance companies. PIMCO, MetLife (MET.N), AIG <AIG.N,> Allstate (ALL.N) and Prudential Financial Inc <PRU.N,> for example, are key BABs buyers.

Esposito, who would like the federal government to expand the BABs program beyond the two-year life of the stimulus plan and broaden it to include other forms of financing such as refundings, said international investors who currently buy highly-rated sovereign debt would likely have interest in BABs.

They will probably be central banks and insurance companies from European and Asian countries, he told Reuters. Given that they will have to take time analyzing the debt they will likely gravitate at first to BABs issued by larger, well-known states.

Washington's McIntire expressed doubts about the reliability of an expanded bond program, saying the federal government could play with the subsidies and create uncertainty for issuers.

The U.S. government may use BABs to chip away at the tax-exempt market, he said.

The BABs model is targeted mostly at long-term maturities and will likely not replace tax-exempt debt for shorter maturities, said Esposito. High net worth individuals will continue to demand tax exemptions, he said.

The U.S. government may play with the proportion of the subsidy in an expanded program as it tries to make it cost-effective and find the 'revenue neutral' amount, he said. (Reporting by Lisa Lambert; Editing by James Dalgleish) ((lisa.lambert@thomsonreuters.com; Tel: +1-202-898-8328; Reuters Messaging: lisa.lambert.reuters.com@reuters.net))