* Backing of commercial bank provides Pepper with cheap financing
* Pepper looking to transfer PrimeCredit's mortgage book to BEA
* Chow Tai Fook seen as the other strong contender in the race (Adds details on PrimeCredit's business)
By Saeed Azhar and Denny Thomas
SINGAPORE/HONG KONG, July 16 Finance firm Pepper Australia has roped in Bank of East Asia Ltd to help run a Hong Kong consumer finance business that it is seeking to acquire from Standard Chartered Plc, sources with direct knowledge of the matter said.
Bank of East Asia would provide Pepper with relatively cheap funding to run Standard Chartered's PrimeCredit unit, the sources said on Wednesday.
The support of the Hong Kong-based lender would put Pepper in a stronger position to win control of a business which sources have said could fetch between $500 million and $700 million. The other main bidder is Chow Tai Fook Enterprises.
The sources declined to say whether Bank of East Asia would help Pepper Australia finance the cost of acquiring PrimeCredit. Spokeswomen for Bank of East Asia, Pepper and Standard Chartered all declined to comment.
PrimeCredit boasts returns on equity above rival firms, using Standard Chartered's cheap funding source to finance its business and reduce its reliance on expensive wholesale markets.
As part of the deal, Pepper plans to transfer PrimeCredit's mortgage book to Bank of East Asia, the sources said, requesting anonymity because the talks are not public.
Standard Chartered is selling PrimeCredit because the unit's high-risk, unsecured lending to Asian consumers with scant credit history doesn't fit with the U.K. lender's focus on global corporate banking and high net worth clients.
Pepper and Hong Kong property-to-jewellery conglomerate Chow Tai Fook Enterprises, controlled by the family of tycoon Cheng Yu-tung, are the two potential buyers expected to move to the final bidding, the sources said.
A successful bid by Chow Tai Fook will help the group to diversify its business and give it a slice of Hong Kong's lucrative consumer lending business.
The deal is subject to approval from Hong Kong Monetary Authority, the island city's de facto central bank.
The auction has attracted bids from Japan's Shinsei Bank Ltd , Carlyle Group United Asia Finance, a Hong Kong-based consumer finance firm.
The sale of PrimeCredit is among a series of disposals planned by the Asia-focused lender.
PrimeCredit could secure a sale worth about three times its book value as it has generated a return on equity of over 40 percent in recent years. By comparison, rival Aeon Credit Service Asia has a return on equity of close to 11 percent.
Standard Chartered, like regional peers, is focusing on shoring up its main corporate banking business to better absorb a slowdown in economic growth and lending in emerging markets.
Morgan Stanley is advising Standard Chartered on the sale, sources have said earlier. (Reporting by Saeed Azhar in SINGAPORE and Denny Thomas in HONG KONG; Additional reporting by Byron Kaye in SYDNEY; Editing by Stephen Coates and Ryan Woo)