France's Renault SA and India's top utility vehicle maker Mahindra are in the running to buy troubled South Korean SUV maker Ssangyong Motor, sources said on Friday, in a deal worth up to $500 million.

The participation of high profile international firms in the auction was seen as a potential threat to the dominance enjoyed by South Korea's top automaker Hyundai Motor and its affiliate Kia Motors, not only on their home turf but in export markets.

Seven foreign and South Korean companies have submitted letters of intent for Ssangyong, 10 percent owned by China's SAIC Motor Corp, by the Friday deadline, Ssangyong said.

Shares in Ssangyong jumped by their 15 percent daily limit on reports of the unexpectedly strong interest. The stock, with a market cap of 455 billion won ($372 million), closed up 13 percent in turnover 13 times the average over the past 30 days.

While the South Korea's smallest carmaker declined to identify bidders, sources said the Renault and its Japanese partner Nissan Motor Co, along with India's Mahindra & Mahindra have joined the fray.

An industry source in Japan with knowledge of the situation told Reuters any interest would come from Renault-Nissan, rather than its Renault Samsung Korean unit, but a review of Ssangyong may turn up nothing of interest to the Franco-Japanese alliance.

Ssangyong has been in court-led restructuring since early 2009, hammered by one of the industry's worst downturns.

A Seoul court kicked off the sale process for the cash-strapped SUV maker this month, and is set to receive binding bids by July 20 to pick a preferred buyer during August.

Nissan and Ssangyong declined to comment, while a Renault spokeswoman in Paris said: For legal reasons, we can't make any comment.

Asked about bidding plans, Mahindra President Pawan Goenka said: We do not make any comments on future acquisition possibilities.

Samjong KPMG and Macquarie, which are handling the sale, declined to comment.

Mahindra shares rose 3.2 percent in Mumbai, Renault was up 1.2 percent in Paris and Nissan ended 1.1 percent higher in Tokyo.

TACKLING HYUNDAI

Mahindra has good reason to be interested in buying Ssangyong as this fairly young auto firm can learn auto manufacturing and marketing procedures from Ssangyong...It can also learn key technologies in carmaking, said Kevin Lee, an analyst at Shinhan Investment Corporation in Seoul.

Mahindra has been looking for acquisitions to expand its portfolio and get access to new markets since it lost out to larger rival Tata Motors to buy Jaguar Land Rover in 2008, and analysts said the firm had more to gain from purchasing Ssangyong.

Mahindra, which has revenues of about $6 billion, this week signed a deal to take a majority stake in pioneering electric car maker Reva.

But South Korean media said the Renault-Nissan alliance might be a more willing buying, citing an official at Renault Samsung, South Korea's third-largest automaker.

A team-up between Renault Samsung and Ssangyong could help them reduce gap with South Korea sector leaders Hyundai and Kia, which control 80 percent of the country's auto market.

There was opposition within the company, but we judged we could turn aggressive with enlarged production line-ups and participated in the bidding, Yonhap news quoted an unnamed Renault-Nissan official as saying.

South Korean media has put the value of the deal at $300 million-$500 million as a potential buyer is expected to subscribe to new shares amounting to Ssangyong's current market value of $370 million to own at least 50 percent of the company and also pay a management premium.

Ssangyong, which has just 2 percent of the domestic vehicle market, has suffered losses over the past two years and reported another net loss of 25.8 billion won in the first quarter.

It aims to more than double car sales this year to 85,000 vehicles and double it again to 183,000 cars by 2013 with new product launches such as the C200 SUV planned this summer, its first new model in two years, and by boosting sales in overseas markets such as Vietnam and Russia.

India's Ruia Group, based in the eastern city of Kolkata has also submitted a letter of intent for Ssangyong.

We have been turning around sick companies in the past. Given our expertise in that, when this opportunity opened up in Korea, we decided to make a bid, a spokesman for the group told Reuters.

($1=1222.9 Won)

(Additional reporting by Janaki Krishnan in MUMBAI, Jungyoung Park, Cho Meeyoung, Suh Kyungmin and Miyoung Kim in SEOUL and Helen Massy-Beresford in PARIS; Editing by Lincoln Feast)

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