* Demand fails to meet company's target for secondary sale
* IPO in Sevan Drilling raises $350 million
* Sevan Marine shares fall 21.2 percent
(Adds details on extended application period, updates share)
By Victoria Klesty
OSLO, April 18 (Reuters) - Norwegian oil services firm Sevan Marine ASA said it would cancel a planned secondary share offering in its Sevan Drilling unit after raising $350 million in an initial offering, sending its shares tumbling.
"Demand for the secondary sale did not satisfy the company's target," the firm said in a statement.
Shares in Sevan Marine, which owns and operates floating production and drilling units, fell 21.2 percent to 4.044 crowns at 1239 GMT while the Oslo Stock Exchange benchmark index was down 1.3 percent.
In a secondary offering Sevan Marine had hoped to sell most of its remaining shares in the drilling rig spin-off and raise more than $100 million to expand in the fast-growing market for deepwater floating production platforms.
"There is still a big financial uncertainty in Sevan Marine which needs more money within a year," said Fearnley Fonds analyst Haakon Magne Ore.
"There is also a fear that they need a share issue -- they simply have too much and expensive debt in relation to cash flow."
Sevan Marine initially hoped to raise $600 to $700 million, including the $350 million for Sevan Drilling in the IPO and another $250-$350 million in a secondary sale.
On Friday, it announced the share price for Sevan Drilling shares would be just 12 crowns per share compared with the 16-21 crowns it indicated on April 4.
After issuing 160.4 million new shares in Sevan Drilling, Sevan Marine will now retain about 37 percent rather than the 10 percent envisaged earlier.
Sevan Marine had said on Friday a secondary offering would consist of up to 73 million of its 96 million shares, a substantial increase in the number of shares previously offered.
For technical purposes, the Sevan Drilling book will remain open until April 20 to give investors opportunity to reassess their position, and Sevan Marine expects to release a supplement prospectus later on Monday.
Shares in Sevan Drilling are to be listed on the Oslo Bourse on April 29. (Additional reporting by Henrik Stoelen)