UPDATE 3-AEI cancels IPO hours after slashing its size

* AEI first IPO to be canceled in 2009, AEI faults market

* Before canceled, number of shrs and price had been cut

* IPO's expected proceeds cut from $750 mln to $262.5 mln

* AEI owners had expected to reap $500 mln, then $12.5 mln (Adds statement from AEI)

By Phil Wahba

NEW YORK, Oct 29 (Reuters) - Energy company AEI (AEI.N), a former Enron unit that operates power and gas distribution lines in Latin America, canceled its IPO on Thursday, hours after it had slashed the size of the deal by two-thirds in the face of weak demand.

The IPO, which was managed by Goldman Sachs & Co (GS.N) Credit Suisse (CSGN.VX), Citi (C.N) and JPMorgan (JPM.N) had been originally scheduled to price on Wednesday, but was postponed by a day while the underwriters and AEI changed the terms of the deal.

It is the first U.S.-listed IPO this year to be withdrawn after an attempt to price the offering.

After AEI had slashed the number of shares and price range, the expected total proceeds had fallen to $262.5 million from $750 million.

In a statement on Thursday evening, AEI faulted market conditions for the cancellation, but analysts had expressed concerns about the company's debt load and its exposure to political and operational risk because of its presence in 19 countries. [ID:nN28320322]

There was also concern that under the original terms of the IPO, the company was not getting enough money compared with its backers.

"The private equity owners were getting too much in the IPO, leaving a paltry amount for AEI to pay off some debt," said Scott Sweet, a senior managing partner at advisory firm IPO Boutique.

The owners decided to sell 1 million shares, rather than the 33.3 million shares under the original plan, and the expected proceeds to the owners fell to $12.5 million from $500 million.

AEI and its backers had earlier on Thursday decreased the overall size of the offering to 21 million shares, from 50 million shares, and lowered the price range to between $12 and $13 from an earlier range of $14 to $16.

"There was such bad will that the institutions as well as retail doors were not open -- they were not open to hearing the story again," Sweet said.

AEI's shareholders include funds that have invested through Ashmore Investment Management Ltd, part of Ashmore Group Plc (ASHM.L), which bought the former Enron International unit in 2006. AEI's CEO James Hughes worked at Enron for nearly 10 years.