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Polyus Gold , Russia's largest gold producer, has sold a 7.5 percent stake to two strategic investors, raising $635 million and helping to boost its free float ahead of plans to apply for a premium listing in London.

Polyus, worth about $10 billion and sitting on potentially lucrative gold reserves in Russia's far east, said on Tuesday it had sold a stake of 5 percent less one share to Chengdong Investment Corporation, a subsidiary ofChina's CIC , and a 2.5 percent holding to Russian bank VTB .

The company had originally looked at selling up to 10.5 percent of its shares, either through a placing with private institutions or through a wider bookbuilding process, but a source familiar with the transaction had said it could be scaled back due to choppy financial markets.

CIC and VTB, Polyus's financial advisor, stepped in as investors, reinforcing a partnership which saw CIC buy in to the Russian bank when the state floated a 10 percent stake last year.

The shares were sold by Polyus's subsidiary Jenington International.

Polyus said it planned to apply for a premium listing on the London Stock Exchange, a move that would normally require 25 percent of its shares to be freely traded. The 7.5 percent stake sale increases Polyus's free float to 22 percent.

A banking source said JP Morgan would negotiate with the UK Listing Authority on behalf of the company to seek a waiver for the 25 percent threshold, taking into account Polyus's relatively large market capitalization.

A premium listing in London would raise Polyus's profile, fulfill one of the requirements needed for it to join the benchmark FTSE-100 <.FTSE> equities index, and put it in a stronger position to take part in a wave of international mergers sweeping the metals and mining industry.

But while analysts said they expected VTB could sell its holding after a 180-day lock-up expired, the sale of shares to CIC would not help boost liquidity.

"We would expect CIC to hold its stake, given its preference for long-term strategic investments, and therefore doubt Polyus's liquidity will improve as a result of the CIC sale," Renaissance Capital analyst Andrew Jones said in a note.

"We believe a broader sale to institutional investors would have been better for liquidity."

The company said the shares were sold at $2.8 each on Monday, a 6 percent discount to Friday's closing share price. The proceeds of the sales would be used to repay debt and to finance development projects, it added.

Polyus, owned by oligarch Mikhail Prokhorov and billionaire Suleiman Kerimov, had also hoped to ease the way to a FTSE 100 index spot by redomiciling from its Jersey home to London but so far Russian politics, as well as Russian laws that treat the gold sector as strategic, have complicated that step.

The move has not received the approval needed from a committee chaired by Prime Minister Vladimir Putin, who was re-elected to the presidency on March 4 in a contest where Prokhorov, running on a liberal ticket, ran a respectable third.

Earlier in March, Polyus withdrew its application to create a new parent company, considered necessary for it to relocate to London. Redomiciling would have allowed Polyus to be eligible to join the FTSE 100 by raising its free float to 25 percent, rather than the 50 percent minimum needed for a Jersey company.