KUALA LUMPUR, Nov 18 (Reuters) - With many local institutions squeezed out of its IPO allocations, Maxis Bhd , Malaysia?s top mobile provider by market share, looks set to trade up when it debuts on Thursday in Southeast Asia?s biggest initial offering.

The US$3.3 billion ($4.7 billion) IPO comes just two years after reclusive Malaysian billionaire Ananda Krishnan took Maxis private in a 40 billion ringgit ($16.5 billion) deal.

Maxis Bhd is a spin-off from unlisted parent Maxis Communications Bhd, which also owns significant telecom assets in fast-growing India and Indonesia. Maxis Bhd focuses solely on the domestic phone market.

?It?s got upside,? said Pong Teng Siew, head of research at Kuala Lumpur-based Jupiter Securities. ?I remember the old Maxis completely surprised me on how high it could go,? he said, referring to the company before its 2007 delisting which was once one of the most widely owned Malaysian stocks by foreigners.

But the announcement of the listing of the stripped-down Maxis, requested by Prime Minister Najib Razak in an effort to boost Malaysia?s sluggish stock market, met with some scepticism as its domestic growth prospects are seen as uninspiring.

Maxis? ranking in the main stock index has also been dragged down by its low free float.

?What we heard is that the response from the international investors had not been as overwhelming as expected,? said the chief investment officer at a bank-backed fund management firm.

?Latest news that the stock is not among the top five stocks in terms of weightage could be a dampener,? said the CIO.

The institutional tranche of the IPO, accounting for more than 90 percent of the total, was sold at 5 ringgit a share, towards the lower end of an initial indicative range of 4.80 ringgit to 5.50 ringgit.

The bulk of this went to four cornerstone investors, who have promised not to sell their shares for six months, as well as to Bumiputra, or ethnic Malay investors who can sell their shares. These groups was allotted more than two-thirds of the IPO.

The cornerstone investors are mutual fund giant Fidelity and three domestic funds, including EPF, Malaysia?s largest pension fund.

Other institutional investors, who don?t fall into the cornerstone and Bumiputra categories, were allotted just 550 million shares, about a quarter of the IPO. The institutional portion, minus the cornerstone and Bumiputra investors, was 3.7 times oversubscribed.

Ananda and his partners, Saudi Telecom and some Malaysian funds, sold 2.25 billion shares, or a third of Maxis Bhd, in the IPO.

Maxis, with a market value of 37.5 billion ringgit ($15.39 billion), will replace Malaysia Airlines in the

30-stock FTSE Bursa Malaysia KLCI Index.

Local index funds, which promise unitholders returns similar to that of the main stock index, must add Maxis shares to their portfolios or risk lagging the wider market.

CHAOTIC TRADE

Most of the local funds do not have enough shares from the bookbuilding and plan to make up the shortfall by buying in the open market, said an institutional dealer at a leading Malaysian brokerage.

?The bookbuilding allocation was so small that it?s enough to whet their appetite but not enough to fill their stomach,? said the dealer who could not be named because of company policy.

The dealer said her firm had already received client indications to buy Maxis shares on Thursday at 5.10 ringgit to 5.20 ringgit each. ?Trade could be chaotic, we expect strong buying momentum,? she said.

But not many are out there to sell.

?So far, there?s no indication of selling,? said a second dealer. ?My big clients said they want to hold on to the shares for its yield.?

Maxis has said it will pay at least 75 percent of its net profit as dividends.

Apart from the scarcity of shares, active participation from proprietary trading desks could also lead to a volatile trading session for the stock, said the second dealer.

Operated by big investment banks, a proprietary trading desk buys and sells stocks and other securities with its own money instead of clients? money.

While it?s a delicate task for fund managers to get the right balance between cost and return, it?s not so complicated for retail investors who have bought the stock at a discount price of 4.75 ringgit.