Japanese trading firm Itochu (8001.T) is in talks with KKR [KKR.UL] to form a joint bid for Citigroup Inc's (C.N) Bellsystem24, in what might be the largest private equity deal in Japan this year, sources said.

U.S. buyout giant Kohlberg Kravis Roberts & Co and European firm Permira have emerged as the most aggressive contenders for the purchase of Bellsystem24, which is expected to be worth about $1.5 billion, Reuters reported last week. [ID:nT69396]

The transaction is part of Citigroup's global effort to unload assets to bolster its capital base and the highest-profile deal handled so far by private equity arm Nikko Principal Investments Japan.

KKR, which opened its Tokyo office in 2006 but has not yet made a major deal in Japan, was not immediately available for comment. Itochu, which already has some business ties with Bellsystem24, a leading telemarketer, declined to comment.

KKR has hired Morgan Stanley as its financial advisor for the bid and Permira has appointed JPMorgan, said the sources with direct knowledge of the matter.

Other banks are pitching KKR for additional financial advisory roles as some of them believe the tie-up between KKR and Itochu, which has experience in running a similar business to Bellsystem24, may have a greater chance of winning, said the sources.

Bellsystem, which operates call centres, competes against Moshi Moshi Hotline Inc and Transcosmos Inc.

The sources declined to be identified as the bidding process is confidential.

The deal is also drawing attentions from other private equity funds and potential strategic buyers, which have been doing due diligence in recent weeks, and the seller has set Sept. 1 as the deadline to receive the first round of bids, said the sources.

Citigroup tried to sell Bellsystem24 last year, but its initial attempts stalled over price concerns.

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(Additional reporting by Junko Fujita in Tokyo) (Editing by George Chen and Jonathan Hopfner)