* JC Flowers' stake to drop to 3.8%
* Shinsei Bank started in 2000, went public in 2004
* Shinsei Bank first Japanese lender to be owned by foreign investors (Adds background)
By Junko Fujita
TOKYO, Aug 8 (Reuters) - Private equity investor JC Flowers & Co will cut its stake in Japan's Shinsei Bank to less than 4%, according to a filing by the lender, selling shares worth around $700 million nearly two decades after one of Japan's first buyout deals.
The share sale will see the fund's founder, J. Christopher Flowers, also sell down his personal stake in the lender, and exit the bank's board, according to the filing.
Flowers and other investors will sell as many as 45.6 million shares, including an over-allotment, to domestic and overseas investors. That would bring the JC Flowers & Co holding from 21.4% to 3.8% of outstanding shares, including treasury stock.
The sale price has not been set, but the shares are worth around 74.2 billion yen ($700 million) as of Thursday's closing price of 1,627 yen.
JC Flowers partnered with private equity firm Ripplewood to buy the failed Long-Term Credit Bank and relaunch it as Shinsei, or "new life," in 2000, after it was saddled with massive bad loans following the collapse of Japan's asset bubble.
That made it the first Japanese lender to be owned by foreign investors and a subsequent initial public offering in 2004 generated a huge profit for JC Flowers and Ripplewood.
When JC Flowers cuts its stake, the government, which had injected public funds into the bank in 1998 and 2000, will become its top shareholder.
The sale of shares will be handled by Bank of America Merrill Lynch, Citigroup Inc and Nomura Holdings Inc. The share price will be set between Aug. 20 and Aug. 23, the filing showed.
The news was announced after trading closed in Tokyo on Thursday, when Shinsei's stock dipped 0.12% to 1,627 yen. ($1 = 106.1100 yen) (Reporting by Junko Fujita; Editing by Malcolm Foster, Muralikumar Anantharaman and Rashmi Aich)