* Latest example of Abu Dhabi govt support for local firms
* Etisalat picks four banks to arrange euro bond - sources (Adds detail, context)
By Matt Smith and David French
DUBAI, May 26 Abu Dhabi gave Etisalat a $500 million grant towards its 4.14 billion euro ($5.64 billion) purchase of 53 percent of Maroc Telecom, the company's prospectus for a planned bond issue shows.
The grant provides further evidence of Abu Dhabi's support for its companies' foreign expansion but could draw complaints from rivals about the Gulf emirate using its vast hydrocarbon wealth to subsidise state-owned businesses and distort competition.
Fellow Abu Dhabi-based company Etihad Airways benefited from a $3 billion interest-free loan from the emirate's ruling family, the Australian Financial Review newspaper said last week, leading to complaints from rival airlines.
The Etisalat grant was mentioned in the prospectus for a bond issue to help to repay some of the debt the company took on to complete the Maroc Telecom transaction.
"In connection with the acquisition, the group received an amount of $500 million as a grant from an entity owned by the government of Abu Dhabi," the document stated.
Etisalat is 60 percent-owned by the United Arab Emirates. The UAE is a federation of seven sheikhdoms, of which Abu Dhabi is the capital and holder of the vast majority of its oil reserves.
Etisalat did not respond immediately to a request for comment.
The grant comes on top of an 8.7 percent stake taken by the Abu Dhabi Fund for Development - a state body which provides cheap loans and grants for projects in developing nations - in the legal entity that will hold Etisalat's Maroc Telecom stake.
Sources had told Reuters in April that Abu Dhabi was providing a quarter of the funding for the purchase of the stake from France's Vivendi, with the rest coming from bank loans.
Etisalat said last month that it had raised a 3.15 billion euro loan facility from 17 local and international banks, split between a 2.1 billion euro one-year bridging loan and a 1.05 billion euro three-year loan.
The bridging loan was always expected to be refinanced with a bond issue and Etisalat could start marketing that as early as next week, having chosen four banks to arrange the issue, four banking sources said.
It has chosen Deutsche Bank, Goldman Sachs , HSBC and Royal Bank of Scotland to arrange the euro-denominated offering, the sources said.
These four banks could be joined by others from among the company's lenders as "passive bookrunners", three of the sources said, although they added that Etisalat had yet to decide how many banks would be given such a title.
Under such a scenario, the main bookrunners take charge of running the bond sale to investors. The passive bookrunners play little or no role, but both will be paid an arranging fee by the issuer, with the main banks usually receiving a greater sum.
The bond issue, should it materialise, will be Etisalat's debut offering and is expected to attract significant investor demand, given its rarity value and high rating.
In a rating report last week, which classified both the company and the bond programme as Aa3, Moody's said that Etisalat's rating was "amongst the highest for any rated global telecommunication service provider".
Investors are likely to compare the bond with other Abu Dhabi state-linked entities, such as Mubadala. Also rated Aa3 by Moody's, it issued a $750 million bond with a seven-year lifespan on April 23 at a spread of 120 basis points over equivalent U.S. Treasuries. ($1 = 0.7336 Euros) (Additional Reporting by Stanley Carvalho in Abu Dhabi and Abhinav Ramnarayan in London; Editing by David Goodman)