* Huarong net profit jumped 66 pct in 2012 to 6.96 bln yuan
* Huarong manages over 300 bln yuan of assets
* Huarong's rival Cinda working with advisors for IPO (Adds details on Cinda deal, Huarong's performance)
By Denny Thomas and Samuel Shen
HONG KONG/SHANGHAI, June 24 (Reuters) - China's Huarong Asset Management Corp plans to raise up to $2 billion by selling a stake of 15 percent to 20 percent, two sources told Reuters, becoming the country's second asset management company to offer a minority stake to outsiders.
Huarong, established in 1999, is the biggest of the four funds that China's government set up to remove an estimated 1.4 trillion yuan ($230 billion) worth of bad loans from the country's top four state lenders as they were preparing for initial public offerings.
Huarong was set up to acquire Industrial and Commercial Bank of China Ltd's (ICBC) bad assets worth 407.7 billion yuan. ICBC, which was listed in Hong Kong and Shanghai in 2006, had accrued the bad assets when the bank made government-directed loans to 71,000 mostly state-owned firms, media reports at that time said.
Huarong's planned fund raising comes at a time when the quality of loans inside China's banking system is under heavy scrutiny amid a slowing economy. Last week's spike in interbank lending rates created a cash crunch that sparked worries across the country's financial system.
Huarong has invited banks to make pitches to win an advisory role in the sale, and recently appointed one to run the process, according to one of the sources, who asked not to be named as the information was not public yet.
Cinda Asset Management Corp, another bad loan vehicle created by China, raised $1.6 billion last year from investors including China's National Social Security Fund, Standard Chartered and UBS.
Cinda has kicked off an IPO process, informally engaging Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs and UBS to work on the potential listing, IFR, a Thomson Reuters publication, reported last week.
Huarong's eventual goal is to turn into a publicly listed company and the sale of the minority stake is a prelude to an IPO, sources added.
Beijing set up Huarong, Cinda, Great Wall Asset Management Corp and Orient Asset Management Corp to buy up nonperforming loans from its state-owned banks in preparation for the lenders' eventual listing.
China's four AMCs have all transformed into commercially viable entities after completing their mandates to dispose of bad debts inherited from the Big Four Banks. That has enabled them to compete directly with other Chinese brokerages and asset management firms.
Huarong was restructured into a joint stock financial holding group in 2012 with businesses ranging from asset management, banking, securities, trust, leasing, investment, funds, futures, and real estate.
It manages over 300 billion yuan of assets, and its net profit jumped 66 percent in 2012 to 6.96 billion yuan, according to its annual report. Huarong said it would work with strategic domestic and foreign investors to achieve a listing both at home and abroad.
Huarong was not immediately available for comment.
China's Ministry of Finance, which owns 98 percent of Huarong, plans to sell some of its shares but will keep a controlling stake in Huarong, Chairman Lai Xiaomin told Reuters in April. The ministry did not specify the size or timing of the move.
China Life Insurance Co Ltd , the world's biggest insurer by market value, owns 1.6 percent of Huarong.
The asset management companies were backed by bonds issued by the Chinese government valid for 10 years, during which they were supposed to sell all the nonperforming loans, but that timeframe was extended in 2010 for another 10 years. ($1 = 6.1329 Chinese yuan) (Reporting by Denny Thomas and Samuel Shen; Additional reporting by Elzio Barreto in Hong Kong; Editing by Michael Flaherty, John Mair and Ryan Woo)