As the largest initial public offering on a U.S. exchange in 18 months, the closely watched share sale of Banco Santander (Brasil) will likely attract plenty of demand next week even as some investors balk at the price of the stock.

The bank could raise as much as 15.6 billion reais ($8.78 billion) with the IPO, a record for a Brazilian company and the biggest in the world since Visa Inc's offering in March 2008.

The unit of Spain's biggest bank, Santander, may benefit from a surge of inflows to emerging market stock funds and expectations of lending growth in Brazil, Latin America's largest economy.

Still, after a 63 percent jump in Brazil's main stock index this year, shares in the country may be expensive. Concerns over Santander Brasil's profitability and stiff competition from rivals Itau Unibanco and Bradesco may also weigh on the shares, the two largest private sector banks in Brazil by assets.

Obviously Santander is a company of spectacular quality, but in terms of the structure of the asset, profitability and the fact that they will have to deploy all that capital ... maybe the price is a bit too ambitious, said Clecius Peixoto, who helps manage $18 billion of emerging market stocks at Emerging Markets Management LLC in Arlington, Virginia.

Peixoto said the Santander Brasil offer is no bargain, but he is considering buying the stock because of the outlook for growth in the country.

Santander Brasil has a price-to-earnings ratio of about 14, in line with the 14-15 range of rivals Bradesco and Itau Unibanco.

The fact that the bank has two strong competitors may force it to price the IPO conservatively, said Nick Einhorn, research analyst at Connecticut-based investment firm Renaissance Capital.

It's tough when you have two good comparables. People will want an IPO discount, especially because they are trying to price $7 billion worth of stock. You have to make enough people like the price, he added.

Banco Santander's Brazilian subsidiary filed to sell 525 million units in New York and Sao Paulo, with each unit representing 55 common shares and 50 preferred shares, according to the offering prospectus.

The bank will offer the units at a price of 22 reais to 25 reais each, with final pricing due on October 6.

The units will start trading on October 7 on the Sao Paulo stock exchange under the symbol SANB11and on the New York Stock Exchange under the symbol BSBR BSBR.N.

HEALTHY DEMAND

Banco Santander will be the lead manager of the offering, with Credit Suisse, Merrill Lynch and BTG Pactual also helping underwrite the stock sale.

The IPO would be the biggest in Brazil's history, topping a previous record set in June when credit card company VisaNet raised 8.4 billion reais. It also would be the largest IPO in the United States since Visa Inc's $19.5 billion offering in March 2008.

The Santander deal should benefit from large inflows to stock funds and an increase in risk appetite by international investors, who typically buy two-thirds of IPOs in Brazil.

Research firm EPFR Global said investment inflows to global emerging market equity funds reached a 39-week high in the third week of September. Inflows since the beginning of the year totaled $18.2 billion, compared with outflows of $12.2 billion a year earlier.

Brazil ranks at the top for many emerging market fund managers, second only to China, according to EPFR.

Demand for this deal will be very healthy, said Bill Buhr, IPO strategist at Morningstar IPO Services. A deal of this size is a good indication that world markets have definitely turned.

($1=1.777 reais)

(Additional reporting by Luciana Lopez in Sao Paulo and Phil Wahba in New York; Editing by Richard Chang)

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