* Origin to sell 53 pct stake in Contact
* Sale price fixed at NZ$4.65 a share, 7.3 pct discount
* Proceeds to pay down debt
* Contact to raise shareholder payout level, list on ASX (Adds detail, comment)
By Gyles Beckford
WELLINGTON, Aug 4 (Reuters) - Australia's Origin Energy Ltd ORG.AX said on Tuesday it will sell its controlling interest in New Zealand electricity generator and retailer Contact Energy Ltd and use the proceeds to reduce debt.
Origin said it had an underwritten agreement to sell its 53.09 percent stake through a bookbuild at a fixed price of NZ$4.65 a share, a 7.3 percent discount to Contact's closing price on Monday, raising NZ$1.81 billion ($1.19 billion).
"Today's announcement is consistent with Origin's stated intention to continue to take action to reduce operating and capital costs, realign debt across group entities, and where appropriate, divest assets," Origin Managing Director Grant King said in a statement.
Origin's investment in Contact has been the subject of media speculation because of pressure on its balance sheet from growth projects, including a liquefied natural gas project in Queensland.
Ratings agency Standard and Poor's cut the company's rating to BBB- in April, saying that Origin had not taken action to bolster its balance sheet.
Origin said it would retain upstream production and exploration interests in New Zealand.
Contact, whose shares were placed in a trading halt until the deal is completed, said it would increase its dividend payout and look to list on the Australian stock exchange.
It said it expected to report underlying earnings of about NZ$161 million for the year to June 30 at its annual result in two weeks.
Contact generates about a quarter of New Zealand's electricity from gas, geothermal and hydro stations, and has around 560,000 retail customers, giving it 20 percent share of the market.
In May, the company scrapped plans to invest in overseas projects and instead paid a special dividend of NZ$367 million to shareholders.
($1 = 1.5270 New Zealand dollars) (Gyles Beckford; Editing by Dan Grebler and Steve Orlofsky)