Bank of Cyprus aims for bond sale after raising 1 bln euros in new capital

* Bank of Cyprus raises 1bln euros from EU, US investors

* New investors have 'three to five year' horizon - CEO

* Bank eyes 500mln eur to 1bln eur debt sale by Sept

* Good bank/bad bank split 'not feasible' at this point

* Sale of 300mln UK loans could be agreed within a week (Adds CEO interview, recasts)

By Laura Noonan and Michele Kambas

LONDON/NICOSIA, July 29 (Reuters) - Bank of Cyprus, which has just raised 1 billion euros ($1.3 billion) from investors, plans to sell up to 1 billion euros in bonds in September, chief executive John Hourican said, a move that would mark a rehabilitation of the euro zone's first bank to recapitalise using depositors' cash.

The island's largest bank, which was on the brink of collapse when Cyprus took a international bailout in 2013, said late on Monday that big name investors including U.S. billionaire Wilbur Ross and the European Bank for Reconstruction and Development had agreed to invest 1 billion euro in equity.

"The bank needed a 'turn the page moment'," Hourican told Reuters in an interview from Nicosia. "This is the hardest thing we needed to do to put the company back on its footing for recovery."

Bank of Cyprus made history in the euro zone debt crisis as the first bank forced to convert uninsured deposits into equity as a condition for Cyprus to receive 10 billion euros in aid from the European Union and the International Monetary Fund.

The bank, badly hit by its exposure to debt-crippled Greece, was under the control of the island's central bank for several months last year and was hastily merged with its collapsed rival Cyprus Popular Bank, also known as Laiki.

Hourican, a former head of Royal Bank of Scotland (LSE: RBS.L - news) 's investment bank, took over as chief executive in November and is overseeing the bank's restructuring. Its bad loans hover at close to 50 percent of its total loan book, and it is heavily reliant on the central bank for funding.

ACCELERATION

The CEO told Reuters securing the 1 billion euros equity investment would help to speed up the restructuring and revealed that the bank is already ready to return to the debt markets.

It aims to raise between 500 million and 1 billion euros via a covered bond, a kind of debt that has recourse against particular assets of the bank, and also against the bank itself.

"We'd like to be doing that at some point during September, probably late September," he said. "I wouldn't call the time perfectly yet, but in the very near future." He said the bank is targeting interest rates on the bonds "in the high threes" implying a rate between 3.7 percent and 3.99 percent.

Hourican said that the bank would continue to deleverage so it is in a stronger position to lend more to the local economy. It is already better able to do this as its core Tier 1 capital will rise to 15.1 percent from 10.6 percent because of the equity raising, putting the bank ahead of most EU peers.

A 300 million euro sale of a London loan book Bank of Cyprus inherited from Laiki is the next step, and a deal could be agreed within a week, he said.

The bank is also exploring options to sell some non-performing loans. Hourican said the bank had concluded that separating those bad loans into a 'bad bank' was not feasible at this point because it was too costly.

Bank of Cyprus has already put 11.5 billion euros of non-performing loans into a separately-managed business and Hourican said it has had some success in reducing non-performing loans amongst large corporates.

NEW WAVE

Hourican said that the bank's new investors had a "three to five year" horizon on their Bank of Cyprus holding since there was a lot of work to be done.

Hourican said they would want "a seat or two" on the board. "We've very happy to accommodate that."

The most prominent of the new investors is Ross, who made his name and his money by resolving bankruptcies, is known for taking punts on the euro zone's banking recovery.

His earliest - a bet of 290 million euros on the Bank of Ireland (Other OTC: IRLD - news) in 2011 at the height of the crisis - made him a profit of 500 million euros when he sold his stake earlier this year.

More recently, the 76-year-old American billionaire invested in the recapitalisation of Greece's Eurobank in April with fellow Bank of Ireland investor Fairfax Financial (Other OTC: FRFXF - news) . He has also spoken of exploring opportunities in Italy, Portugal and Spain.

Ross said in a statement the investors he represented were committed to buying about 40 percent of the placement. Hourican declined to name them.

Bank of Cyprus said a broad range of institutional investors from Europe and Russia also took part. Russians already have a significant presence in Bank of Cyprus' investor base and board, because they had large deposits with the bank that were forcibly converted into shares under last year's recapitalisation.

Existing shareholders will be allowed to buy 200 million euros of the 1 billion euros in new equity. If they do not take that up, the new investors will hold 46 percent of the bank. If they do, the new investors will pay less, and own less.

The Bank of Cyprus will subsequently make 100 million euros in new shares available to both new and existing shareholders. ($1 = 0.7442 Euro) (1 US dollar = 0.7443 euro) (Editing by Jan Paschal and Jane Merriman)