RUSAL faces potential retail investor ban for HK IPO

* HK regulator wants IPO limited to institutional investors * HKEx opposes SFC proposal - source By Kennix Chim HONG KONG, Dec 17 (Reuters) - Russia's UC RUSAL, the world's biggest aluminium maker, has encountered another hurdle in its effort to move ahead with its roughly $2 billion Hong Kong initial public offering. RUSAL will not be allowed to sell IPO shares to retail investors under a proposal by Hong Kong's Securities and Futures Commission, IFR Asia reported on Thursday, citing sources. A separate Reuters source confirmed the SFC proposal, but said that the Hong Kong Stock Exchange does not agree with the condition. The SFC plans to hold a meeting on Friday to further discuss the issue to see if they can resolve the matter, according to that source. A RUSAL spokeswoman declined comment. The sources were not authorised to speak publicly about the offering. UC RUSAL, controlled by industrial magnate Oleg Deripaska, has secured Russia's largest-ever debt restructuring and is trying to press ahead with plans to list 10 percent of its shares in Hong Kong and Paris, in what is expected to be an IPO worth around $2 billion. Hong Kong regulators were meeting with RUSAL representatives to discuss other conditions for the IPO, sources close to the matter have told Reuters. It is not clear if Hong Kong regulators or RUSAL had reached any final agreement on whether the IPO could officially go forward. By not allowing RUSAL to sell shares to individual investors, Hong Kong regulators appear to be signaling they are still nervous about the offering. Hong Kong's population are famously rabid IPO investors, lining up at banks on the days of popular offerings. But the population is also famous for making public and embarassing displays in the face of the Hong Kong government when they feel regulators have let them down. The most significant display of this outrage came last year during the Lehman Brothers mini-bond scandal here. Although RUSAL has restructured its debt, the company is still very new turf for Hong Kong regulators. The primary listing of a company outside of Asia on Hong Kong's exchange is very rare. The regulators have spent weeks mulling over the IPO and earlier this month RUSAL named two Hong Kong based non-executive directors to its board. (Additional reporting by Fiona Lau; Editing by Michael Flaherty and Lincoln Feast)