Rosneft's bank advisers sought to price its initial public offering (IPO) at $7.50 (€5.92) a share yesterday, but the Russian state oil firm was pushing for more citing strong investor demand, market sources said.

"There are fierce discussions at the moment about the pricing. The banks would like to price the IPO at $7.50 a share," one banker involved in the IPO said. This would give Rosneft a valuation of $76.4 billion, against the $80 billion the company is pushing for.

"The discussion right now is to make sure the IPO does not get priced at the top," added another banker. If the shares are priced too high, it could limit the IPO's appeal and reduce the return to investors when the stock starts trading.

The IPO, which could become the world's fourth biggest, has been 1.7 to 1.8 times oversubscribed, with orders totalling between $16 billion - $17 billion, sources close to the offering said. Rosneft wants to float around 15 per cent of its stock.

The demand from "strategic" investors such as international oil companies has helped push Rosneft's valuation towards the top of the initial guidance range of $60 billion - $80 billion.

Banking sources said strategic investors were primarily seeking to clinch closer relations with the Kremlin at a time of growing state influence and control over Russia's energy sector.

"This is not an IPO for portfolio investors," said Eric Kraus, a Moscow-based fund manager running the Nikitsky Fund.

"This is not a market-oriented deal, it is driven by politics. This IPO is a glorified private placement and is going to win its strategic investors favour with the powers that be." The IPO takes places just days before Russia hosts its first summit of the G8 leaders in St Petersburg.

President Vladimir Putin has put energy security high on the summit's agenda and industry sources say he wants to present the IPO of Russia's third largest oil producer as the country's input to global energy security.

Subscriptions in Russia have brought in over $4 billion out of the $11 billion-plus IPO, while China's CNPC, Malaysia's Petronas and BP plc may be seeking $5 billion - $6 billion, banking sources said.

On Thursday, Putin told German ZDF television channel that Russian retail offering had collected $560 million.

"Big foreign partners have already invested billions of dollars. I think this is right and I'm satisfied," he said.

Advisers told investors on Wednesday they revised pricing guidance on the IPO up to $7.15 to $7.85, giving a valuation of at least $73 billion, from a previous range of $5.85 to $7.85.

Many Western funds have refused to buy into the IPO saying it is overpriced and legally risky, as Rosneft's core asset is Yugansk, which it bought from stricken oil major Yukos after a forced state auction.

Mark Mobius, the world's biggest emerging markets investor, running $30 billion of assets at Templeton Asset Manager, said yesterday he was spurning the IPO because of its high price and legal risks.

"We looked at the numbers and did our analysis. In the end we didn't get involved. I have no regrets," Mobius said. "The stock will cost much more than what we had calculated was a fair price. Lawsuits are a question mark too.

"Definitely there'll be litigation going forward." Rosneft acquired its key asset Yugansk after Russian tax police forced a sale by the now-jailed oligarch Mikhail Khodorkovsky's Yukos oil firm and Yugansk's ex-owners have threatened a lifetime of litigation.

It also faces a lawsuit from US-based holders of Yukos American Depository Receipts, including former US national security adviser Richard Allen, seeking damages for alleged expropriation of assets.

Mobius said Rosneft was pushing for a top-of-the-range valuation in the IPO.

"They will make it a success," he said. "They're getting in the big rich guys," he added, referring to oligarchs and strategic investors. "Investment banks will get their fees, too."

Bankers said strategic investors may account for well over 50 per cent of the offering.

Bankers said strategic investors accounted for more than 50 per cent of the demand.

By comparison, Western institutional investors accounted for more than 80 per cent of the total demand at independent Russian gas producer Novatek's successful IPO last year, when the firm placed around 20 per cent of its stock, bankers say.

The price guidance puts Rosneft on a premium to rival Lukoil which has larger reserves and much more refining capacity. Lukoil's free float is estimated at 40-50 per cent of the stock.

But even valued at $80 billion, Rosneft would be priced at a major discount to western firms on a reserves basis - the industry's preferred measure - implying $4 per barrel of reserves compared with $13 per barrel at BP.

With the books closed on Wednesday and pricing to be announced tomorrow, Rosneft is awaiting approval from Britain's market watchdog for its shares to begin trading in London.