UPDATE 2-Private equity firm signs $8 bln Libya deal

(Adds more detail)

LONDON, Feb 19 (Reuters) - London-based private equity firm Klesch said on Tuesday it is to invest in an $8 billion project in Libya to build a 300,000 barrels per day oil refinery and a 725,000 tonne per year aluminium smelter.

Chairman Gary Klesch told Reuters he could not disclose where the complex would be built, but the Libyan government would make an announcement "in due course."

The industrial complex is due to be completed by 2011.

Klesch added that the investment fitted in well with the company's other activities.

"We're into a lot of different commodities and we already own a smelter," Klesch said. "This fits in with our business plans."

Last May, Klesch bought an aluminium smelter in Vlissingen in the Netherlands from Alcan.

Klesch's Libyan investment also illustrates private equity's increasing interest in emerging markets.

Emerging market countries offer private equity groups higher growth than mature markets and buyout firms can often find local lenders willing to provide financing on more favouable terms than Western banks, which have become more risk-averse after the credit crunch.

Private equity firms are having trouble getting debt finance in Europe and the United States given this market environment.

Private equity has already invested in Libyan assets.

Los-Angeles-based private equity group Colony Capital LLC, for example, last June agreed to buy a controlling stake in Libyan state-owned Tamoil in a deal that valued the Italy-based oil refiner at 4 billion euros.

Klesch, an American financier, initially made his name in Europe as a distressed-debt investor who was involved in some high-profile corporate restructurings, including Euro Disney and Eurotunnel.

Klesch's other recent deals have included Transamerica Maritime Containers, bought from Dutch insurer AEGON (AEGN.AS) for $1.2 billion and eKabel Hessen from Deutsche Telekom (DTEGn.DE) for 1.2 billion euros.

No one from the Libyan government could be contacted immediately. (Reporting by Barbara Lewis, Jane Merriman and Mathieu Robbins; editing by James Jukwey)