SYDNEY (Reuters) -Virgin Australia will return to the Australian Securities Exchange on Tuesday after raising A$685 million ($439 million) in an initial public offering, a transaction dealmakers hope will revive a flat-lining listings market.

Australia's second-largest airline by market share after Qantas Airways was delisted in 2020 after private equity giant Bain Capital rescued it from administration.

The airline sold 236.2 million shares at A$2.90 each, valuing it at A$2.32 billion on a fully diluted basis.

Bain, which bought Virgin for A$3.5 billion including liabilities, will see its stake reduced to 39.4% from about 70%, while Qatar Airways, which recently bought into the airline, will retain 23%, the IPO prospectus showed.

The IPO attracted strong demand with institutional investors lodging indicative orders worth more than the deal when bookbuilding begun, showed a term sheet seen by Reuters.

The shares being priced at an almost 30% discount to those of Qantas was an incentive to buy, fund managers said.

Virgin has a domestic flight market share of 34.4% as of March versus Qantas' 37.5%, showed a report from the Australian Competition and Consumer Commission.

"From our perspective, the IPO pricing offered an attractive discount to Qantas, allowing room for shareholders to benefit from Virgin's operational improvement targets and structural tailwinds like the rise of premium ticket demand," said Jun Bei Liu, founder of Ten Cap which is a Virgin cornerstone investor.

"Virgin's domestic focus and hedged fuel position provide resilience amid geopolitical and commodity market risks."

Virgin pared back its international business under Bain's ownership. It has resumed long-haul flights to Doha through a lease agreement with state-owned Qatar.

The IPO is set to deliver a fee windfall for investment banks Goldman Sachs, UBS and Barrenjoey with 2% of proceeds paid to underwriters, the prospectus showed. There is an option for a further 1% incentive fee to be paid.

IPO volume in Australia has flat-lined over the past few years with only one listing so far in 2025 worth $6.4 million, down from $319 million worth of listings by the same time last year, LSEG data showed.

"A successful Virgin debut will help revive Australia's subdued IPO market," Liu said.

"Fresh equity supply, particularly from well-supported, high-profile listings, is vital for a healthy capital market."

Retirement resort group GemLife is due to start trading on July 3 after raising A$750 million in its IPO this month.

($1 = 1.5596 Australian dollars)