TPG hires Lazard to sell Australian energy retailer Alinta for about $3.5 bln - sources

(Adds detail about Australia M&A activity, Alinta quote)

By Byron Kaye

SYDNEY, Oct 29 (Reuters) - TPG Capital Management LP has hired investment bank Lazard Group LLC to sell Australian gas and electricity retailer Alinta Energy in a deal worth about A$4 billion ($3.54 billion), three sources close to the transaction said.

The sale process is expected to commence in early 2015, the sources told Reuters on Wednesday.

In 2011, the U.S. private equity giant took Alinta private in a A$2.1 billion debt-for-equity swap. In recent months, TPG has been reported to be considering its exit options.

TPG has not decided whether to sell Alinta via a private sale or a share market listing, said two of the sources, declining to be identified due to the sensitivity of the matter.

Energy firms are featuring strongly in Australia's biggest year of M&A activity since 2011, with Cheung Kong Infrastructure Holdings Ltd's A$2.37 billion purchase of gas pipeline company Envestra Ltd and AGL Energy Ltd's A$1.5 billion acquisition of two state-owned power stations among the largest of the year.

Private equity exits are also driving up Australian M&A activity. TPG's half-owned hospital company Healthscope Ltd raised A$2.26 billion in the country's biggest share market listing of the year to date.

In a statement, an Alinta spokeswoman confirmed the Lazard appointment and said the company's owner is "exploring future ownership options for the company".

"This process was always intended as part Alinta Energy's private equity ownership structure," she added.

TPG declined to comment.

The sale of Alinta, which sells gas to 700,000 customers in the state of Western Australia and electricity in South Australia and Victoria states, as well as owning eight power stations and a gas pipeline, comes as Australian governments plan their own sales of energy infrastructure.

From 2015, the government of New South Wales state plans to sell a half stake in its electricity distribution network for about A$20 billion and the government of Queensland state plans to raise A$33 billion selling pipelines, ports and power generators.

(1 US dollar = 1.1293 Australian dollar) (Reporting by Byron Kaye; Editing by Michael Perry and Ryan Woo)