LONDON, Aug 1 (IFR) - British American Tobacco's plans for a jumbo multi-currency debt sale, expected this week, have likely been scuppered after the company suffered a fresh blow of corruption allegations on Tuesday.

The company and its subsidiaries are being investigated for corruption by Britain's Serious Fraud Office (SFO), the regulator said on Tuesday.

The news of the investigation followed an announcement on Friday from the US Food and Drug Administration (FDA) of plans to reduce nicotine levels in cigarettes and explore measures to move smokers toward e-cigarettes.

The company was planning to issue a euro, sterling and US dollar-denominated jumbo bond for its US$49bn purchase of Reynolds American at the end of July, sources told IFR.

The deal was slated for this week, following its earnings results last Thursday and a shareholder meeting on Tuesday where it formally completed the Reynolds acquisition.

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"The bonds will have to go on the back burner while the news continues to come out. We expect them to issue at the end of August or early September now," one investor said.

BAT's bonds have gapped out by up to 15bp since the FDA's announcement. Its 3.125% Mar 2029s widened 10bp on Friday, and a further 5bp on Tuesday on news of the probe.

The wider market, by comparison, has stayed steady, with the iBoxx non-financials corporate index bid at 50bp on an asset swap basis at yesterday's close, 2bp tighter than at the start of last week.

BAT's planned supply has become one of the most anticipated bond deals in the European market, after it said it would take out two bridge loans totalling US$20bn.

But the major regulatory shift announced on Friday from the FDA sent shares of traditional cigarette companies plunging.

BAT, the maker of cigarette brands including Dunhill and Lucky Strike, said in a statement it intended to cooperate with the investigation, but did not provide any more details.

The company said in February last year that it had appointed an external law firm to conduct a full investigation into allegations of historic misconduct in Africa and that it was liaising with the SFO.

"Our American subsidiary, Reynolds American Inc, and its operating companies are encouraged by FDA Commissioner Dr. Scott Gottlieb's comments today recognising tobacco harm reduction policies and the continuum of risk for tobacco products," a British American Tobacco spokesperson said.

"Dr. Gottlieb's comments regarding nicotine and menthol do not come as a surprise to us. We are well prepared and look forward to participating in a thorough process to develop a comprehensive plan for tobacco and nicotine regulation."

BAT did not respond for comment when contacted by IFR.

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EUROPE VS US

The buyside has long speculated over the skew between the US dollar, sterling and euro portions of the BAT deal.

"I suspect they will do a global investor call and execute in the US dollar market first to hedge (their) US assets and then see how that goes before coming to Europe," the investor said.

"We've made room for the new bonds but we won't hesitate in backing out if they don't add a premium on to the deals, and that's factoring in the wider levels. The FDA news has changed the company's valuations completely now."

BAT is rated Baa2/A-/BBB+ by Moody's, Fitch and S&P. (Reporting By Laura Benitez; Editing by Alex Chambers and Philip Wright)