UPDATE 3-Bain, KKR bidding for Singapore's Unisteel-sources

(Adds statement from Unisteel, updates share prices)

By Michael Flaherty and Alison Tudor

HONG KONG/TOKYO, May 2 (Reuters) - Bain Capital and Kohlberg Kravis Roberts & Co [KKR.UL] are among the private equity firms bidding on Singapore-based disk drive component maker Unisteel Technology UNST.SI, sources close to the matter said on Friday.

Macquarie's (MQG.AX) investment banking group is running the auction and a first round of bids has already been received, the sources said.

Analysts have said the company could be worth around S$800 million ($588 million).

Unisteel issued a statement late on Friday confirming that it had appointed Macquarie to help it evaluate "preliminary approaches from certain parties in relation to a proposed transaction".

It said it was not certain that a deal would take place.

Shares of Unisteel rose more than 11 percent to close at S$1.79 giving it a market value of about $530 million after Reuters reported on the potential deal.

Unisteel's auction represents another acquisition opportunity in the hard disc drive sector, which has seen a wave of consolidation amid stiff competition and falling prices.

Carlyle Group [CYL.UL] and TPG Capital [TPG.UL] are also pursuing Unisteel but Bain and KKR are seen as having the strongest interest in Unisteel, said the sources, who were not authorised to speak to the media about the deal.

"Unisteel is a stable business with good cash flow that would make it relatively easy to finance," said one of the sources, who did not want to be identified. "That is why it's attractive to these funds."

Unisteel said on April 15 that the ownership of the company was under review, but added that discussions with potential buyers were at preliminary stages and might not progress.

Macquarie, and all four private equity firms, declined to comment.

HOT PURSUIT

The hard disk drive industry has been in upheaval in recent years as leading players Seagate Technology STX.N and Western Digital (WDC.N) scooped up suppliers.

Major parts makers such as Nidec (6594.OS) and TDK (6762.T) also bulked up to fend off increasingly cut-throat competition and tumbling prices.

Private equity firms have also being getting into the act.

Last year, KKR acquired Singapore hard disk drive components maker MMI Holdings, while Standard Chartered (STAN.L) Private Equity and CVC Asia Pacific bought computer casings maker Amtek Engineering Ltd.

Unisteel is being fought over by private equity firms because it has little debt and generates a steady cash flow, which makes it easier for funds to gear up.

The firms also welcome the chance to take majority ownership of a strong Asian asset. While leveraged buyout firms have flocked to Asia seeking to tap its booming economy for deals, they have had a hard time finding companies willing to give up control.

Should a private equity firm succeed in a majority buyout of Unisteel, company founder and Executive Chairman Bernard Toh Bee Yong is expected to roll over part of his 18 percent stake into the new firm and take an active role in its future, sources said.

Private equity firms have bought several Singapore technology companies in recent years to take advantage of relatively low valuations in a market where investors were more focused on banks and property firms.

TPG Capital and Affinity Equity Partners joined forces last year to buy Singapore's United Test & Assembly Center, a microchip tester, at S$1.20 per share, or an 8 percent premium, valuing the firm at S$2.2 billion.

Since Unisteel's announcement of its strategic review mid-April, analysts have been calculating possible buyout prices based on the price tags of previous buyouts in the sector.

The analysts' estimates have suggested a take-out price of S$1.80-S$2.17 per share. At S$2 per share, the company would be worth around S$800 million, or roughly US$600 million.

Unisteel trades at 13.6 times earnings and offers shareholders a dividend yield of around 3.7 percent, according to Reuters data. Unisteel had net cash of S$43.3 million at the end of 2007, according to its 2007 financial statement.

Technology sector peer Map Technology (MAPT.SI) trades at a P/E of 8.8 times. Its shares spiked in volume and rose 5 percent to end the day at S$0.52 on Friday, their highest closing level since August, after Reuters' Unisteel report. ($1=1.36 Singapore Dollar) (Additional reporting by Tan Wei Xin in Singapore; Editing by Anne Marie Roantree & Ian Geoghegan)