* AgBank likely to list in H2, or even 2011 -sources

* AgBank vice-president denies $22 bln IPO report

* State pension fund named as strategic investor (Recasts with sources' comments)

BEIJING/HONG KONG, Jan 5 - AgBank, China's No. 3 lender by assets, is likely to make its multibillion dollar IPO only in the second half of 2010 or even later, as it tries to sort out its bad loans and waits out an expected round of capital raising by other Chinese lenders, sources said on Tuesday.

Agricultural Bank of China's [ABC.UL] highly anticipated IPO, likely to be one of this year's biggest, may not come before then as it deals with its bad loans, a banking source directly involved in the deal said.

Another source close to the bank said an IPO is not a priority at the moment, as AgBank focuses on issues like clearing up its bad debt and setting up overseas branches. Both the sources did not want to be named because they were not authorised to speak to the media.

AgBank has so far not set a timetable for the IPO.

We are hoping and trying to list by the end of this year, Pan Gongsheng, AgBank vice president told Reuters by telephone.

He denied a report in the China Daily, China's main English language newspaper, that AgBank would make a $22 billion initial public offering as soon as April.

This (report) is not true. We are undecided about a detailed timetable, and the size and method of the IPO, said Pan, a former board secretary for Industrial & Commercial Bank of China (1398.HK)(601398.SS) and an instrumental player in that bank's $22 billion IPO in 2006 in Hong Kong and Shanghai.

The bank's mountain of bad loans is a legacy of its role as a provider of politically driven credit to farmers and rural enterprises. Beijing's expectation that AgBank will continue to serve the countryside even after its reform could hamper profitability, analysts have said.

The Beijing-based bank hived off $111 billion of bad loans in November 2008 before completing its conversion into a joint stock company early last year. [ID:nPEK318837]

NO HURRY

Analysts concurred that AgBank's IPO was unlikely to take place very soon, since many expected other Chinese banks will raise funds in the first half of the year to replenish their capital bases, after a lending binge in the first half of 2009.

The ideal timing would be the second half of the year, because a lot of banks will need to refinance in the first half, said Jin Lin, an analyst with Orient Securities.

AgBank's restructuring is being widely watched as it would largely complete a decade-long overhaul of China's banking system that has seen the government spend tens of billions of dollars to clean up balance sheets once saddled with bad debt linked to government-directed lending.

Central Huijin, the domestic investment arm of China's sovereign wealth fund, owns half of AgBank following a $19 billion capital injection in 2008. The Finance Ministry owns the other half.

China's other listed top state banks, China Construction Bank (0939.HK)(601939.SS) and Bank of China (3988.HK)(601988.SS), raised more than $15 billion and $13 billion, respectively, in combined initial public offerings in Hong Kong and Shanghai.

AgBank, China's only big state lender that has yet to float shares, had forged strategic partnerships with the country's state pension fund, Pan said.

We haven't decided whether or not to introduce a foreign strategic investor, he said.

Bringing a foreign strategic investor on board before moving to a public listing was a model used by China's other three state-owned banks as they underwent reform.

Foreign investors that hold stakes in large Chinese state banks include Goldman Sachs (GS.N), Allianz Group (ALVG.DE), American Express (AXP.N) and Bank of America (BAC.N).

But most of those partnerships haven't yielded the kinds of strategic tie-ups that Chinese officials were hoping for and have been more financial in nature for the Western banks, leading some to say that AgBank may not seek such a partnership. (Additional reporting by Simon Rabinovitch and Xie Heng in Beijing; Samuel Shen in Shanghai; and Don Durfee and George Chen in Hong Kong; Editing by Doug Young, Chris Lewis and Muralikumar Anantharaman)

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