* Alrosa values itself between $8 billion and $8.7 billion
* Below value seen at $9 billion to $15 billion in May
* Announcement of the offer price is expected on Oct. 28
By Polina Devitt and Olga Popova
MOSCOW, Oct 14 Alrosa started to market a share sale on Monday valuing the Russian state-owned diamond miner at up to $8.7 billion, less than the company's earlier estimate, as Moscow revives its privatisation efforts.
The government aims to sell 14 percent of Alrosa, which competes with Anglo American-owned De Beers for the position of the world's largest diamond miner, as part of a multi-year drive to dispose of state assets.
Launched in 2010, the privatisation plans have been only partially implemented in a faltering global economy. Alrosa would be the first such sale this year.
Alrosa set the price range for the sale on the Moscow stock market at between 35 roubles and 38 roubles per share, just above the price a small proportion of its shares currently trade at.
The range values the group, the world's largest diamond miner by volume, at between $8.0 and $8.7 billion.
That is well below a $9 to $15 billion estimate the company gave in May. Earlier this month, a banking source and a source familiar with the deal said Alrosa was targeting a value of more than $10 billion.
It was not immediately clear why the price range was lower than the company's earlier estimate. Analysts and industry sources suggested that Alrosa brought the price closer in line with shares already trading to ensure the sale was a success.
The final price is due to be announced on Oct. 28.
Alrosa is listed on the Moscow stock exchange, but only 9 percent of its shares are available to trade and the market is illiquid. The planned sale will lift its free float to 23 percent.
As well as the government selling shares to bolster state finances, an Alrosa subsidiary will sell a 2 percent stake to help pay down debt.
Societe Generale analyst Sergei Donskoy said the price range looked "feasible". His current target price for Alrosa's stock is higher than the company's range, at 39 roubles.
"It's quite normal that the company set the price range below its fair value as in current market conditions you should give investors a chance to earn after the deal," he said.
Appetite for Russian stocks has been hit by corporate governance scandals, such as Rosneft's takeover of TNK-BP early this year, which left minority shareholders in the Anglo-Russian oil venture nursing losses.
Russian stocks traded on an average price to earnings ratio of about five - half that of countries in the emerging markets index - in late September.
Separately on Monday, Russian entrepreneur Oleg Tinkov's credit card business TCS said it will place shares worth up to $870 million in a London stock market listing, more than originally expected.
RISKS, REWARDS In an 801-page prospectus, Alrosa outlined risks to investors, including state precious metals and gems repository, Gokhran, whose level of stocks are a state secret.
"A sudden increase in sales of rough diamonds by Gokhran from its stock piles may cause a significant decline in rough diamond market prices," it said. These stock piles are believed to be substantial, the company added.
Gokhran bought diamonds worth $1 billion from Alrosa during 2008 and 2009 and worth $248 million in 2012. Alrosa expects new sales to be made in the second half of 2013, but did not say how much.
According to a strategy plan approved last month, Alrosa expects to increase production to 41 million carats by 2023 from around 36 million carats in 2013.
Its revenue is expected to rise to 309 billion roubles in 2023 from 166 billion roubles in 2013, while the EBITDA margin will remain flat at 41 percent. The company's 2013-2021 capital expenditure is set at about 256 billion roubles ($8 billion).
The company also plans to set the minimum level of dividend payments at 35 percent of its net profit starting from 2013. Currently, it returns at least 10 percent of net profit to shareholders under Russian accounting standards.