* Spin-off timing should hinge on completion of LNG project

* Split would help shift debt to gas production business

* Spin-off could shore up investment-grade credit rating (Adds shareholders' comments, context, shares)

By Sharon Klyne and Swati Pandey

SYDNEY, May 13 (Reuters) - Australia's Origin Energy hired Macquarie Capital to advise on a potential spin-off of its gas production businesses, including a $25 billion liquefied natural gas plant, two sources familiar with the matter said on Friday.

Macquarie has advised that any spin-off should occur only after Origin's debt-saddled Australia Pacific LNG project is in full production, due in 2017, said one of the sources who was briefed on the advice. Following project completion, guarantees to lenders will be satisfied, making the split easier.

Both sources declined to be named as the matter was confidential. Origin and Macquarie declined to comment.

Ratings agency Standard & Poor's believes there are few synergies between the two parts of Origin, its domestic power business and its oil and gas division.

"Either it is a risky utility or low-growth oil and gas. The two parts of the business are not closely correlated," said Sydney-based S&P senior director Thomas Jacquot.

Depending on the execution, a spin-off could help shift debt to the gas production business and ease the risk of a ratings cut to junk status. Origin is currently rated 'BBB-'.

"I'd say they should do all the work to have the option in 12 months' time, and then base the decision on the outlook then," said a fund manager with a stake in Origin who declined to be named.

For the moment, Jacquot said Origin's debt can largely be serviced by its retail and power generation businesses, as the company shored itself up with an A$2.5 billion ($1.8 billion) equity raising last year.

Credit Suisse analyst Mark Samter in April said a demerger could help boost long-term shareholder returns, but estimated the company would still need to raise $4 billion in new shares ahead of a split.

Shareholders say there could be merit in a spin-off of the gas production business, but they may have little appetite to participate in another round of fund raising.

"If they need more capital to facilitate splitting, is there really any advantage in doing that?" said Jason Beddow, chief executive of Argo Investments, a top 10 investor in Origin.

Origin is trying to raise an additional A$800 million through asset sales by June 2017.

UBS and Bank of America Merrill Lynch are advising Origin on those divestments.

At 0337 GMT, Origin shares were up 0.6 percent while the S&P/ASX 200 benchmark was down 0.6 percent.

($1 = 1.3667 Australian dollars) (Reporting by Sharon Klyne and Swati Pandey; Additional reporting by Sonali Paul in Melbourne; Editing by Stephen Coates and Tom Hogue)