* Several versions of cap hike prospectus ready-sources
* Bank to go ahead if market conditions right-sources
* AGM invitation with cap hike outline expected this week
(Adds details, background)
FRANKFURT, April 5 (Reuters) - Commerzbank AG has finished the bulk of its preparations for a capital hike and will issue shares as soon as markets are favourable, three sources told Reuters.
"The bank has worked out several blueprints for a prospectus," one of the people familiar with Commerzbank's strategy said.
Commerzbank declined to comment on Tuesday.
"As soon as it thinks that the right moment has arrived, it will pull one of the drafts out of a drawer and go ahead with its share issue," another source said, adding this move was not likely to come before shareholder approval in May.
"Commerzbank is constantly talking to investors to learn how many new shares they would be willing to buy at which price," a third source said.
German state bailout fund Soffin injected 16.4 billion euros ($23.26 billion) of so-called "silent participations", a form of non-voting capital, and took a 25 percent stake in Commerzbank during the financial crisis.
Germany's second-biggest lender has said its repayment options include raising capital, retaining profits and using unneeded capital reserves that are freed up as Commerzbank reduces risky assets.
People close to the bank said that some details of the repayment plan may be published as early as this week in the invitation to its shareholder meeting scheduled for May 18.
In the AGM invitation, Commerzbank will likely include a proposal to hike capital by a very large number of shares, the sources said.
According to several people familiar with the bank's thinking, Commerzbank has not set a specific target of how much it wants to raise.
Industry experts expect Commerzbank to aim for a single capital increase of at least 5 billion euros ($7.09 billion) so it will not have to come back for more later. A capital increase in several steps could depress the share price for months as investors could fear dilution of their holdings in stages.
Assuming Commerzbank offered a typical discount of 25 to 30 percent on the stock's current price, it would only be able to raise 5.3 billion to 5.6 billion euros through the capital hike if it doubled the number of shares in circulation.
Because Commerzbank is not expected to pay a dividend for this year, cash that would otherwise be distributed to investors could be used to repay the state.
A reduction of risky assets could also free up a further amount of up to 4 billion euros.
As the state will likely convert some silent participation into equity to escape a dilution of its 25 percent stake, this will reduce the total amount due to be repaid.
Commerzbank has a big incentive to repay at least some state aid as soon as possible given that it will have to pay interest on the bailout money once it is profitable under German accounting rules.
The bonuses of management board members will also remain capped at 500,000 euros as long as repayment does not commence.
The remainder of the state aid will be returned with the help of retained earning from 2012 onwards, sources said. (Reporting by Arno Schuetze, Alexander Huebner and Philipp Halstrick; Editing by David Cowell) ($1=.7050 Euro)