Russian firms eye $40 bln from share sales -banker

* Russian issuers could raise $11 bln by end of this year

* A further $30 billion in share sales seen in 2012-13

* Price remains key, investors demand 25 pct IPO discount

By Kylie MacLellan

LONDON, July 7 (Reuters) - Russian companies could raise more than $40 billion in the equity markets by the end of 2013, a senior Russia-focussed investment banker said on Thursday, boosted by the government's long-term plan to privatise more than 1,000 companies.

But the market for new listings remains tough, with investors demanding deep discounts and the risk that government sales will crowd out private issuers, said Steve Kale, director of equity capital markets for Russia and CIS at Citigroup .

Around $10 billion has been raised so far this year by Russian issuers, according to Citi, including the government's sale of a 10 percent stake in lender VTB , and initial public offerings (IPOs) by sugar and pork producer Rusagro (AGRORq.L) and construction firm Etalon (ETLNGq.L).

Russian companies have been queuing up to float on overseas exchanges this year, particularly London, but have received mixed receptions with at least seven having to pull offerings as investors baulked at the valuations sought by owners.

"We have seen a significant rebound in activity but we are a long way from the surge in activity that took place in 2006/07," Kale told a Russian IPO conference at the London Stock Exchange. "Sentiment at the moment is still very, very challenging."

Kale predicted another $11 billion could be raised in equity markets by Russian firms by the end of this year. Around half of that is likely to come from the government's sale of a stake in Russia's biggest lender Sberbank .

A further $30 billion could potentially be raised over the 2012-13 period from both IPOs and secondary sell downs, he said.

Another senior investment banker said 10-12 Russian firms could attempt share sales by the end of this year.

The government plans to raise 1 trillion roubles ($35.7 billion) over the next three years from the sale of state assets to finance a budget deficit, a programme which president Dmitry Medvedev last month said could be accelerated.

"Competition from the privatisation pipeline is intense," said Kale. "When you have a privatisation pipeline that is as enormous as what is expected to come out of Russia that does crowd out private company access to capital."

The development of a domestic savings market would help reduce Russian issuers' dependence on foreign capital, he said, adding that international investors had become increasingly reluctant to consider deals below around $500 million, with many now not looking at those less than $800 million to $900 million.

Valuation, long an issue with Russian listings, has become key for IPOs in Europe, as jaded investors who have struggled to make any money on new listings so far this year seek big discounts.

"When we analyse the IPO discounts that are demanded by investors we see that on average the right place to set the low end of a pricing range is a 25 percent discount to the midpoint of (analyst) research," said Kale.

"It is a reflection of investor confidence in primary markets at the moment."

The up to $1 billion London IPO of Russia's PhosAgro is on track to be completed next week, with order books already oversubscribed. The fertiliser group set a price range which valued it at $4.8 billion to $6.1 billion, below the $6.04 billion to $8.77 billion initially cited to Reuters by sources.

"Get the price range wrong and investors will disengage, you will get no momentum in your bookbuilding process and the deal will fail," said Kale. You have got to get the low end in particular of a pricing range attractive enough." ($1 = 27.998 Russian Roubles) (Editing by Erica Billingham)