The potential deal comes as Chinese investors are gradually renewing their interest in overseas acquisitions as Beijing begins to ease tough currency controls it introduced to limit capital flight in late 2016.

Kam Fung, a privately-held Chinese investment firm, is looking to buy a 95 percent stake in Incarlopsa, which is controlled by the Loriente Piqueras family and has nearly 200 million euros in debt, said one of the people. The family would keep the remaining shares.

When contacted by Reuters, Emilio Loriente, chairman and one of the founders of Incarlopsa, acknowledged the interest of foreign investors, but also said he was not actively seeking a sale of his company.

The company is not currently carrying out any sales process but is listening to interest from potential suitors from China, Russia and the United States amongst others, Incarlopsa said in a statement on Monday.

The 40-year-old Incarlopsa, which produces sausages, ham, and other pork products, made 75 million euros in earnings before interest, tax, depreciation and amortization (EBITDA) last year, two of the people said.

The proposed deal price would give the Tarancon-based firm an enterprise value - equity plus debt - of 16 times EBITDA, compared with the European industry average of around 10 times.

It would be the latest in a series of deals by Chinese investors for a top Spanish meat producer, as they look to meet growing demand from consumers in China, already the world's biggest market for pork.

NO MEAT EXPERTISE

Hong Kong-based Kam Fung focuses on property investments in China, according to its website, which makes no mention of expertise in meat production and distribution.

Kam Fung was in talks with a Hong Kong unit of state-owned distressed asset manager China Huarong Asset Management Co. Ltd (>> China Huarong Asset Management Co Ltd) about forming a consortium, said two of the people, but Huarong will likely pull out of the deal as it dials back on some offshore ambitions amid Beijing's scrutiny of outbound deal-making, they said.

Acquisitive Chinese conglomerate Fosun International was also in talks with Incarlopsa over a large stake purchase last year, said one person. Fosun later dropped its interest due to disagreements over valuation and other deal terms.

Kam Fung and Huarong didn't respond to a request for comment. Fosun declined to comment on "market rumour."

Incarlopsa says it is aiming for a 75 percent increase in production over the next four years and plans to export part of that to Asia, according to the company and the industry association.

Set up in China's Guangdong province in 1992, Kam Fung has total assets worth over 10 billion yuan ($1.6 billion), its website shows.

It has been tapping several banks for deal financing, but some lenders have voiced concerns over Incarlopsa's heavy reliance on Spanish supermarket chain Mercadona for revenues, two people said.

(Reporting by Julie Zhu in Hong Kong and Andres Gonzalez Estebaran in Madrid; Additional reporting by Emma Pinedo Gonzalez in Madrid; Editing by Jennifer Hughes, Julien Toyer, Mark Potter and Jane Merriman)

By Julie Zhu and Andrés González