PartyGaming (search), the world's biggest online poker company, said its backers will raise up to 1.14 billion pounds ($2.1 billion) in a London share listing, less than expected as concerns over the legal status of online gaming persist.

Uncertainty about the legality of online gambling in the United States -- where more than 80 percent of its clients are based -- continues to overhang the offer and analysts said the pricing of the shares reflects a risk discount.

"It's a fantastic business and should have a lot of potential but it has a lot of regulatory and legal hurdles to overcome to justify some of the high valuations people have talked about," said Henk Potts, investment manager at Barclays Stockbrokers.

"There's a real question over the legality of providing a service to customers who could potentially be breaking the law in their own country," he added.

PartyGaming will sell shares at between 111 pence and 127 pence in the offer, raising between 996 million pounds and 1.139 billion pounds, including a possible over-allotment offer, it said on Wednesday.

The flotation will value the company, which operates the partypoker.com (search) Web site, at between 4.4 billion and 5.1 billion pounds.

The company had not given any previous guidance, but sources close to the deal said syndicate analysts had forecast the IPO should value it at between 5 billion and 6.1 billion pounds.

PartyGaming is set to rank as the biggest flotation in London since technology company Dimension Data in July 2000 and will break into Britain's leading FTSE 100 (search) share index. The offer size will match the amount raised by publisher Yell as the biggest IPO since Friends Provident in July 2001.

The move underscores a dramatic global boom in online poker playing. PartyGaming, formed in 1997, now reaps a profit of almost $1,000 every minute as it pulls in revenue of $100,000 every hour of the day.

The company and its hundreds of rivals act as hosts for players -- they do not take risks in the game and charge players a commission, or "rake," typically about 3 percent of the pot. Up to 70,000 people play simultaneously on PartyGaming's sites.

PartyGaming's backers will sell 897 million shares in the offer, including a possible "greenshoe" offer of 115 million shares, which would represent 22 percent of the shares on offer.

One source familiar with the deal said the size of the sale had been trimmed, with some investors clearly wary of the regulatory risk.

"Generalist fund managers have shied away from PartyGaming because of potential regulatory risk but fund managers familiar with the gambling sector were sanguine on the issue and understand that any regulation is difficult to enforce," he said.

Sources said indications of interest from fund managers familiar with the sector are high and there were substantial orders for stock placed with bankers following a meeting with the company on Tuesday.

Official trading is expected to begin on the London Stock Exchange (search) on June 27. Dresdner Kleinwort Wasserstein is sole global coordinator for the offer.

Online poker has surged in popularity in recent years, pulling in a wider audience than traditional casino gambling, often attracting women and younger players who may not have visited casinos.

Companies hosting the sites, whose costs are relatively limited, have reaped the reward, and PartyGaming said it has an estimated 55 percent share of the online poker market.

It said its revenues were $222 million in the first quarter of this year, up 93 percent from a year earlier. Operating profit jumped 81 percent from a year earlier to $128 million.

Sources said on a discounted cash flow basis members of the banking syndicate had valued PartyGaming at $8 billion to $10 billion, and on earnings/price ratios bankers estimated PartyGaming would be worth $10 billion. At the mid-point of the indicated range it would trade on about 13.3 times 2006 earnings, a discount to listed peer Sportingbet.

PartyGaming said it would pursue an "aggressive" dividend policy, and planned to pay out $200 million for its 2005 final dividend. It said this would represent two-thirds of the full-year payout that would have been made had it been listed.

The bulk of that payout will go to the company's four founders, who will also reap a cash windfall from the offer and become paper billionaires.

Anurag Dikshit, group operations director, is the biggest shareholder with a stake worth $3.6 billion at the mid-point of the indicated range.

Other co-founders Ruth Parasol and her husband Russ de Leon have a combined stake worth about $3.6 billion, and Vikrant Bhargava, its marketing director, has a stake worth $1.2 billion.

Management and employees will also be awarded options worth 5.6 percent of the company, on average worth 2-3 years' salary for the Gibraltar-based firm's 1,100 employees.

Richard Segal, the chief executive who joined less than a year ago, will have shares and options representing about 1 percent, worth about $85 million.

London is attracting a raft of online gaming companies, mainly because of more relaxed rules in Britain compared to strict U.S. regulations.

Empire Online (search), which provides marketing services and drives traffic to gaming sites, made a steady debut on Wednesday after raising 123 million pounds in its listing on the junior AIM share market.

Empire's shares jumped in early trading, but by midday they had slipped back and were at 180p, 3 percent above their issue price, valuing the firm at about 520 million pounds.

Financial bookmakers indicated PartyGaming could make a damp debut, with Cantor Index expecting shares to trade at 111-116p shortly after their debut and IG Index setting a 115-123p range.