UPDATE 2-India's DLF founders raise $783 mln in share sale

* Founders sold 168 mln shares at 230 rupees each

* Proceeds to be used in property trust, buy out one PE stake

* Shares up nearly 5 pct in a weak market (Adds details, analyst quote, background, bylines)

NEW DELHI, May 13 - The founders of fund-starved DLF Ltd <DLF.BO> on Wednesday raised $783 million through a share sale in India's top listed property firm. Two banking sources said the shares were sold to about 30 institutional investors.

DLF, which has been hit by high debt and declining profits amid a property market downturn, had been seeking funds after a planned Singapore listing of its property trust was shelved last year following a global equities slide.

The company said its founders would use the proceeds from the sale of 168 million shares to inject capital into property trust DLF Assets Ltd (DAL) and also to buy private equity D.E. Shaw's stake in DAL.

The DLF holding of the founders, K.P. Singh and family, will drop to 78.6 percent from 88.5 percent following the deal, which was managed by Deutsche Bank and JPMorgan.

Analysts said the deal was a positive for the company and the sector as it showed that fund raising was possible, boosting DLF shares as much as 7.9 percent in a weak Mumbai market <.BSESN>.

"DLF had been struggling to get private equity investment into DAL," said R.K. Gupta, managing director at Taurus Asset management in New Delhi.

"If they are getting close to $1 billion from this, it will help them clear DAL's dues to DLF and eventually they can merge DAL with DLF," he said.

DLF joins other firms such as rival Unitech <UNTE.BO>, wind turbine maker Suzlon Energy <SUZL.BO> and software maker Tata Consultancy <TCS.BO>, whose founders recently raised funds through share sales.

Unitech raised $325 million through share sales, while the founders of Suzlon got $47 million by selling 2 percent equity.

Exchange data showed 168.1 million shares changed hands at 237 rupees each in a block deal for a total 39.8 billion rupees ($808 million), but DLF later said in a statement its founders got 38.6 billion rupees from the transaction.

The deal was done at less than half the price DLF commanded when it raised $2.25 billion in its IPO in July 2007 offering 175 million shares at 525 rupees each. DLF's market value is now about $8 billion, down from a January 2008 peak of $23 billion.

At 0807 GMT, shares in DLF were up 3.3 percent at 244.15 rupees in a Mumbai market down 0.5 percent.

PROPERTY TRUST

Privately-held DLF Assets Ltd buys commercial real estate from DLF at market price and then leases it out.

Media reports have said Symphony Capital was the other PE investor in DAL, along with D.E. Shaw and the company's founders. DLF has not disclosed details of the holdings.

DLF said in April its board was "reviewing strategic relationship" with DAL and an independent committee of directors was evaluating the "most value accretive" transaction for DLF shareholders, which analysts and media reports have said could lead to DLF taking over DAL. ($1=49.3 rupees)