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By Claire Ruckin and Fiona Ortiz
LONDON/MADRID, April 8 (Reuters) - British private equity fund CVC Capital Partners is the frontrunner in a race to buy Spanish olive oil bottler Deoleo, two banking sources said on Tuesday, a deal that has taken on political dimensions in Spain.
Other bidders include U.S. private equity firm Carlyle and Rhone Capital, France's PAI Partners, and the Italian' government's strategic fund, according to media reports and sources familiar with the process.
Four Spanish banks want to sell their combined 31 percent stake in Deoleo - which sells more than a fifth of the world's bottled olive oil. The buyer of the stake must make a full takeover offer under Spanish law.
Deoleo's market capitalisation is about 483 million euros ($666.27 million), but the company said last week that bids that came in before a deadline on Thursday were below the current share price.
Spain is the world's biggest olive oil producer and the industry is a big employer in Andalucia, a southern Spanish region with high unemployment.
The Spanish government has said it would not block any foreign bids but cabinet ministers have warned they do not want the company to be broken up.
Treasury Minister Cristobal Montoro said on Monday the government was looking at taking a minority stake in Deoleo, which controls three of the world's top four olive oil labels - Bertolli, Carapelli and Carbonell.
A source close to the deal said the government was unlikely to team up with Spanish industry to launch a rival bid, and that a more likely outcome was that major Spanish shareholders could team up with the buyer.
Three other major shareholders in Deoleo have not said whether they would sell their stakes. These are olive cooperative Dcoop with just under 10 percent, Unicaja bank with some 10 percent and Ebro Foods with about 5 percent.
The company ran into problems in 2009 after years of debt-fuelled acquisitions. Since 2010 it has recapitalised, slimmed down and cut debt to six times core earnings from a previous level of 16 times core earnings.
Deoleo shares were up about 1 percent in on Tuesday at 0.45 euro per share.
Bankers are considering debt packages of around 560 million euros - or 6.25 times Deoleo's approximate 90 million core earnings - to finance a potential acquisition of the company, banking sources told Reuters in February
A spokesman for Deoleo said the company had no comment on the bidding process, which is being handled externally and will be reviewed by the board in the coming days. CVC declined to comment.
The banks selling their stakes in Deoleo are state-owned Bankia and BMN, Caixabank and Kutxabank. ($1 = 0.7249 Euros) (Editing by Julien Toyer and Jane Merriman)