* Enel to list up to 1.63 bln shares in renewable unit
* Enel seeks to raise 2.5-3.4 bln euros
* Enel Green Power IPO starts on Oct 18, biggest in Europe
* Share price range set at 1.8-2.1 euros for unit IPO
* Range lower than indicated range of 1.9-2.4 euros
(Recasts with company comment, adds prospectus detail, shares)
By Stephen Jewkes and Alberto Sisto
MILAN, Oct 15 (Reuters) - Italy's Enel has valued its green energy arm at up to 10.5 billion euros ($15 billion), putting it on track to launch Europe's biggest IPO in three years and signalling a possible recovery in equity issues.
Enel, Europe's most indebted utility, said it expects to bank up to 3.4 billion euros ($4.8 billion) from the listing of Green Power (EGP), which it will use to cut its debts and protect its credit rating.
However, Enel cut its price target on Friday to 1.8-2.1 euros a share from a preliminary range of 1.9-2.4 euros a share and investors said the new valuation remained ambitious, with one pledging not to apply for shares in the IPO but wait until after the float and buy them more cheaply on the market.
"We have given our views to bankers dealing with the IPO and this pricing is way too high... It will be tough to get institutional investors into this deal at this price," one European fund manager said, asking not to be named.
The deal comes on the heels of a pick-up in European equity issuance which had seen a sluggish first half of the year, when a run of IPOs were postponed or had their targets cut, but investors continue to drive hard bargains.
Enel shares ended nearly flat at 3.95 euros while the STOXX Europe 600 Utility index was up 0.3 percent at 1612 GMT.
HOW MUCH APPETITE?
Investors have welcomed EGP's diversified energy mix, strong cash flow and broad geographic footprint but expressed concern about slower growth versus peers and still fragile markets, clamouring for a discount.
They worry that cash-strapped states could slash crucial support for green energy.
In a newspaper interview on Thursday, Enel Chief Executive Fulvio Conti said EGP would be valued in line with peers at around 10 to 12 times core earnings, implying a valuation of up to 12.6 billion euros.
The shares of EGP's main rivals -- Spain's Iberdrola Renovables SA, Portugal's EDP Renewables and France's EDF Energies Nouvelles -- have underperformed in the past 12 months, hit by cuts to green energy incentives in Europe and uncertainty over the U.S. climate change bill.
Selling EPG shares at the top end of the range would value it just about in line with peers, with an enterprise value of just over 10 times core earnings, Thomson Reuters data show.
At 1.8 euros a share, EPG's enterprise value would drop to 9 times EBITDA, well below its peers. Enterprise value is the value of a company's shares plus its net debt. According to Enel the unit's P/E 2009 multiple at 1.8 euros a share is 19.9 times compared to 27.7 times for IBR and 31.7 times for EDPR.
ROADSHOW
Enel is scheduled to kick off the IPO roadshow on Monday.
Shares will debut on the Milan and Madrid stock markets at the beginning of November, sources said.
The basic offer will be of 1.415 billion EGP shares, equivalent to a free float of 28.3 percent, Enel said in its prospectus for the initial public offering. This would rise to 32.5 percent if the greenshoe overallotment option is exercised.
The banking syndicate coordinating the offer will get fees totalling 1.85 percent of the total revenue netted from the IPO, aside from any proceeds from exercising its green shoe option.
If the banks do not exercise their green shoe option, Enel will get a maximum of 2.91 billion euros from the offer, net of banking fees, Enel said.
The IPO will include an offer to retail investors of at least 15 percent of the total -- 12.5 percent in Italy and 2.5 percent in Spain. By way of incentive Enel will offer a bonus share for IPO investors of one free share for every 20 shares kept for at least 12 months.
Amid improving investor appetite, Danish jeweller Pandora wrapped up a $2 billion IPO earlier this month while Renault successfully sold some of its stake in Swedish truckmaker Volvo in a $4.2 billion placing. (Additional reporting by Chris Vellacott in London, Giselda Vagnoni in Rome and Jonathan Gleave in Madrid; Editing by Michael Shields and Lin Noueihed) ($1=.7095 Euro)