UPDATE 1-Severn Trent targets retail investors with bond issue

* RPI-linked bond available to retail investors

* Will pay interest semi-annually at 1.3 pct per annum

* Will be in denominations of 100 pounds

LONDON, June 21 (Reuters) - Severn Trent launched an RPI-linked 10-year bond on Thursday, the first British water company to offer retail buyers an inflation proof investment, to help fund its 2.5 billion pound ($3.9 billion) spending plan.

Severn Trent is the latest company to turn to retail-focused all-in-one bond issuing platforms to meet their capital funding needs, meeting demand from investors who have fled weak euro zone countries.

"With a large, inflation-linked, investment-driven, regulated water utility at the heart of our group, we are well suited for this product," chief financial officer Mike McKeon said in a statement.

"This retail bond issue diversifies our funding sources while also seeking to meet demand from retail investors for inflation linked products."

The bonds will pay interest semi-annually at a real rate of interest of 1.3 percent per annum adjusted to take account of changes in the level of the UK Retail Prices Index. They will be listed in London and denominated in 100 pound chunks.

Barclays and Investec have been appointed joint lead managers of the bond issue, the company said, adding that the bonds should be issued on July 11.

Severn Trent, rated Baa1/BBB-, has mandated the two banks to arrange a series of fixed income investor meetings starting June 12.

The group was last in the bond-market with an institution-targeted sterling bond in January, when it priced 250 million pounds of no-grow 30-year paper via Barclays, Citigroup, HSBC and RBS.

Aside from that bond, Severn Trent has five outstanding sterling-denominated deals, and was last in the market in January 2009 with a 6 percent January 2018 bond.

Based on those deals and market comparables, the new issue premium offered by the January bond was around 20-25 basis points, bankers said at the time.