* Lenta could raise $1 bln, be valued at over $5 bln
* Will compete for attention with Metro's Russian unit
* Sale could start next week, depending on markets
By Megan Davies and Olga Popova
MOSCOW, Jan 29 (Reuters) - Russian hypermarket chain Lenta may proceed with a planned London share listing as early as next week, sources said, that could value the retailer at $5 billion and deliver a big return for its backers including U.S. private equity firm TPG.
The company will seek to tap demand from investors for consumer-focused stocks buoyed by Russia's growing middle class, although the country's faltering economy could hit spending.
If it goes ahead, the float could produce a rare success story for a U.S. buyout firm in Russia, giving TPG the opportunity to exit an investment it made in 2009.
Most U.S. private equity firms have shied away from Russia due to concerns about corruption and corporate governance.
TPG owns a 49.8 percent stake in Lenta, according to the company's website. Russian bank VTB, which owns 11.7 percent of Lenta, has previously said it wants to sell by 2015.
The amount the pair invested in Lenta has not been disclosed but a banking source in 2009 told Reuters that TPG and VTB bought a 35.4 percent stake for $115 million. That would have valued the whole company at around $325 million - meaning it has grown in value by 15 times since the original investment.
The percentage return that TPG and VTB will make via the expected share listing was not immediately clear.
Sources familiar with the matter previously said that Lenta, which has 77 hypermarkets in 45 Russian cities, was talking to banks about a listing which could raise at least $1 billion and value the business at over $5 billion.
Two of the sources said that the process could start as early as next week if market conditions are favourable. Another said the company was expected to formally announce its intention to float in the first week of February.
Lenta, TPG and VTB declined comment.
Lenta will compete for investor attention with German retailer Metro AG, which plans to sell up to a quarter of its Russian cash-and-carry business in a London listing to raise funds to invest and to pay down debt.
Metro's listing, planned for the first half of the year, is expected to raise at least 1 billion euros ($1.36 billion) with analysts valuing the total Russian business at 4 billion-7.5 billion euros.
The launches, however, come as consumer sentiment in Russia falters. Total retail sales, including non-food items, grew 3.9 percent last year, according to Russia's state statistics agency, compared with a 5.9-percent increase the previous year.
Retailers Magnit and Dixy earlier reported a sharp slowdown in their sales growth in December and both Magnit and O'Key said they may increase sales at a slower pace this year than last.
Lenta generated 110 billion roubles ($3.2 billion) in sales in 2012, which ranked it Russia's number five food retailer by revenue behind Magnit, X5, Dixy and O'Key.
For the first half of 2013, it reported sales of 62 billion roubles, up 27 percent year-on-year, and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of 6.7 billion roubles, equal to 10.7 percent of sales - one of the highest margins in the Russian food retail industry.
Magnit finished 2013 with an 11.2 percent EBITDA margin.
Lenta will face competition from other retailers planning listings in London, where retail and consumer brands are set to feature heavily as the UK's brighter economic outlook lifts their prospects. Warburg Pincus-owned discount retailer Poundland, KKR's Pets at Home and clothing retailer Fat Face, owned by Bridgepoint, are among those expected to go public in London over the coming months.
Improving market confidence last year already helped to boost the volume of new European listings to $34.9 billion, more than double the 2012 level.
While January is always a quiet period for new issues, bankers working in the sector expect a flurry of companies to kick off share sales in February and March.
The banks advising on Lenta's share listing are JP Morgan Chase & Co, Credit Suisse, UBS, Deutsche Bank and VTB, sources previously said.