* IPO will be largest in Iraqi bourse
* Test of investor faith in economy's recovery
* To offer 67.503 bln shares at minimum of 22 dinars/shr
* Founding shareholders to offer existing shares
* Offer starts on Jan. 3; shares to trade on Feb. 3 (Adds details, background, analysis)
DUBAI, Dec 25 Iraq's Asiacell, a unit of Qatar Telecom, said it planned to raise at least $1.35 billion by floating 25 percent of its share capital on the Baghdad stock market, in what would be the country's largest initial public offer of equity.
The offer, the first major IPO in Iraq since a U.S.-led invasion toppled Saddam Hussein in 2003, will test investor confidence in an economy that is struggling to recover from years of war, political instability and financial sanctions.
Mobile telephone operator Asiacell, in which Qtel owns 54 percent, will sell 67.503 billion shares at a price of at least 22 Iraqi dinars ($0.02) per share in the offer, which starts on Jan. 3, it said in a statement on Tuesday.
Asiacell and its two rivals in Iraq, Zain Iraq and Korek, must raise funds through IPOs as a condition of receiving their $1.25 billion operating licences from the government.
All three companies missed an earlier deadline of August 2011 to do so, and Asiacell is now set to be the first to float on the Iraqi bourse.
Asiacell, which claims to have a 43 percent share of revenues in the mobile phone market and 9.9 million subscribers, said founding shareholders of the company would offer their shares for sale in the IPO, but did not specify if parent Qtel would sell part of its stake.
The offer may be difficult to absorb for the stock market, which has a total capitalisation of only slightly more than $4 billion, and which trades around $3.3 million daily.
Questions have been raised over Asiacell's ability to sell the entire 25 percent stake after two international banks, Morgan Stanley and HSBC, cancelled plans to help arrange the IPO. That leaves Baghdad-based broker Rabee Securities as sole distributor and selling agent.
The absence of international banks may limit any foreign buying of Asiacell's shares, and although Iraq's economy is now growing rapidly and some local investors are flush with cash, it is unclear whether their buying will be enough to support the offer.
The minimum offer price announced by Asiacell is in line with market expectations. In June Qtel agreed to pay $1.47 billion to raise its stake in Asiacell to 54 percent from 30 percent, with a further increase to 60 percent pending Iraqi government approval; that deal valued all of Asiacell at about $5 billion.
Asiacell shares are expected to start trading on the Iraq Stock Exchange on Feb. 3, the company said. ($1 = 1163.0000 Iraqi dinars) (Reporting by Mirna Sleiman; Writing by Dinesh Nair; Editing by Andrew Torchia)