CORRECTED-UPDATE 1-Hony in talks to invest in Giant Interactive buyout -sources
(Corrects to delete reference to Hony as private equity arm of Lenovo Group in second paragraph)
* Hony in talks to invest in up to $500 mln equity tranche backing buyout -sources
* $2.8bln Giant buyout would be 2nd biggest ever of a U.S.-listed China co
* China online gaming market grew 32.9 pct in 2013, expected to double by 2016
HONG KONG, Feb 12 (Reuters) - Chinese buyout firm Hony Capital is in advanced talks to join Baring Private Equity Asia consortium's $2.8 billion bid for online gaming company Giant Interactive Group Inc, two people with knowledge of the matter told Reuters.
Hony Capital is in discussions to invest in an equity tranche of up to $500 million to partly fund the acquisition, the people added.
Baring, Giant Interactive spokesman and Hony all declined to comment. The sources declined to be identified as the discussions are private.
The consortium needs around $1.5 billion to buy the 52.8 percent of Giant they do not already own. The consortium is also raising an underwritten loan to finance the buyout, Thomson Reuters publication Basis Point reported on Wednesday.
In November, Giant's Chairman Yuzhu Shi and Baring offered to take the company private. The buyout would be the second-largest of a U.S.-listed Chinese firm after a Carlyle Group consortium acquired Focus Media for $3.7 billion in 2013.
Giant said on Tuesday it was selling its stake in Alibaba Group Holding Ltd IPO-ALIB.N to a Tiger Global fund for roughly $199 million, but did not disclose further details.
Shares of Giant had risen 87 percent for the year ahead of the buyout proposal, as the popularity of online games soars in China. China's online gaming market grew 32.9 percent to 89.16 billion yuan in 2013, and is expected to double in size by 2016, according to China-based research firm iResearch.
Giant's stock closed at $11.13 on Monday, 5.3 percent below the offer price.
Hony is China's second largest private equity firm, having raised $6.9 billion for investments in the last 10 years, according to data company Preqin.
In August, Hony was part of a consortium that agreed to pay $495 million to buy U.S.-listed China company Simcere Pharmaceuticals Group.
Private equity firms have been active in buyouts of Chinese companies listed in the United States, backing 31 of the 59 announced deals since 2010, according to Thomson Reuters data. (Additional reporting by Paul Carsten in BEIJING and Prakash Chakravarti of IFR/LPC; Reporting by Stephen Aldred; Editing by Denny Thomas and Miral Fahmy)