* Goldman, Warburg Pincus, Khazanah among seven investors in Huarong
* Huarong raising funds ahead of planned initial public offering
* China's bad debt managers see rising profits amid economic slowdown (Recasts lead, adds Citigroup is advisor)
HONG KONG, July 22 Goldman Sachs and private equity firm Warburg Pincus are among the investors nearing a deal to buy an up to 20 percent stake in China Huarong Asset Management Ltd for about $2 billion, seeking a share in the profitable business of bad loan management in China.
Other investors preparing to buy into China's biggest manager of non-performing loans include Malaysian state investor Khazanah Nasional Bhd, China state-backed CITIC Group , China International Capital Corp, conglomerate Fosun Group and China state-backed COFCO Corp, the people familiar with the matter told Reuters.
Citigroup is the advisor for the deal, said the people, who declined to be identified as the matter remained confidential.
CICC, Citigroup, Fosun, Goldman Sachs and Warburg Pincus declined to comment. The relevant officials at Huarong, COFCO, CITIC and Khazanah did not immediately respond to calls and emails seeking comment.
State-owned bad debt managers like Huarong are benefiting from a rise in non-performing loans in China as the economy slows. The company had assets worth $65.7 billion under management at end-2013 and its net profit for last year jumped 44 percent to 10.1 billion yuan.
Huarong is planning to sell the stake to strategic investors ahead of an eventual initial public offering and the seven investors are likely to sign an agreement over the next month, the sources said.
China's biggest banks have said they want to manage their own non-performing loans, attracted by the profits of the bad debt managers like Huarong.
Huarong's smaller peer, state-owned China Cinda Asset Management Co Ltd, raised $2.8 billion in an Hong Kong initial public offering last year. It reported a 26 percent rise in net profit to 9.1 billion yuan in 2013.
Like Huarong, Cinda sold a stake to strategic investors that included China's social security fund NSSF, CITIC Capital, UBS AG and Standard Chartered Bank ahead of its IPO.
Established in 1999, Huarong is one of four bad debt managers that were created by the government to clean up the balance sheets of China's biggest banks.
Huarong raised $1.5 billion on July 10 in a bond offering that saw huge demand from investors, in a sign of increased confidence in the ability of bad debt managers to profit from the rise in non-performing loans.
That deal followed a $1.5 billion bond offering by Cinda in May last year. Both bond deals, and Cinda's IPO, bring the total raised by Chinese bad debt managers to $5.5 billion since December last year. (Reporting by Stephen Aldred and Lawrence White; Additional reporting by Elzio Barreto, Saikat Chatterjee and Yantoultra Ngui; Editing by Denny Thomas and Miral Fahmy)