Bain Capital and Kohlberg Kravis Roberts are among the global private equity firms through to the next round of bidding for a major stake in the mobile devices division of Huawei, the Chinese telecoms equipment maker.

According to people familiar with the auction, Silver Lake and a private equity arm of Goldman Sachs are also through to the second stage. The US firms were told this week that they remain in the hunt to acquire a stake which forms part of a deal likely to value the unit at about $4bn. Several other firms which had considered joining the race, including TPG, Carlyle Group and Blackstone, either did not submit a bid or failed to proceed past the first round.

Huawei, which is best known for making routers and wireless products for mobile operators, is hoping to divest a sizeable stake in the unit to a private equity firm which can help it develop its sales in the US.

The final price will depend on whether Huawei cedes majority control. The company had been prepared to divest a 49 per cent stake but is now considering selling more if a private equity firm is willing to offer a control premium.

Dealmakers believe Bain is in pole position, given its close relationship with Huawei. The pair recently teamed up to bid for 3Com of the US, although the proposed $2.2bn acquisition failed after running in to political opposition in Washington.

According to people who have seen the information memorandum produced by Morgan Stanley, the adviser hired by Huawei, the unit is this year expected to report revenues of $3.5bn and produce net profits of about $400m. Morgan Stanley declined to comment, as did the bidders.

The potential acquisition of a stake is regarded by private equity firms as a rare opportunity to deploy a sizeable amount of money in a growing Chinese company, although the credit markets and issues relating to regulatory approval could affect the size and timing of any investment. Handsets account for about half of the mobile devices division's sales.

The division's sales accounted for 16.4 per cent of Huawei's group revenues last year, rising from 11.8 per cent in 2006, according to industry analysts. Huawei does not publicly disclose total revenue or profit figures.

Private equity dealmakers view the handset business as low margin and subject to fierce global competition but believe that the unit has enough potential growth products to justify a major investment.

Source:Financial Times