By Barbara Lewis and Clara Denina
LONDON (Reuters) - The British government is set to announce a preferred bid for British Steel within days, with a Turkish fund seen as the front-runner, as it scrambles to save thousands of jobs, industry sources said.
The country's second largest steelmaker was put into compulsory liquidation on May 22 after Greybull Capital, which bought the company from Tata Steel for one pound three years ago, failed to secure funding to continue operating it.
Closure of the company, which produces high-margin, long steel products used in construction and rail networks, would jeopardize 5,000 jobs in Scunthorpe, northern England, and a further 20,000 jobs in the supply chain.
A government announcement is expected early next week, one of the sources said.
The winning bidder will have two weeks to perform due diligence, a second source said. Previous deadlines have been flexible, however.
The government office handling the liquidation said talks continued but declined to comment on timing and bidders.
A Turkish consortium led by military pension fund Oyak, which is also the largest shareholder in steelmaker Erdemir, is the front-runner, four industry sources told Reuters on condition of anonymity.
Oyak declined to comment.
Erdemir has dismissed media reports that said it was interested in British Steel.
Liberty House, part of GFG Alliance, a privately-held conglomerate led by Sanjeev Gupta, is one of the other two companies in the running for now, two of the sources said.
Liberty House had no immediate comment.
Greybull, which had wanted to keep European operations that are part of British Steel, has been ruled out, two sources said.
Greybull declined to comment.
Industry sources previously said British Steel was likely to be split up because of the amounts of capital needed after decades of under-investment.
They said any deal to take on the whole business would depend on government funding.
The government has in principle agreed to provide aid to different bidders depending on their respective plans, the first source said.
The government under former prime minister Theresa May was willing to respect European Union state aid rules that prevent a government propping up its industry if it creates unfair competition, government sources have said.
Under Prime Minister Boris Johnson, who says Britain will leave the bloc with or without a deal at the end of October, the mood has hardened.
The EU has been at odds with Turkish steelmakers as it debates safeguards to protect its industry from the impact of U.S. trade tariffs.
The tariffs have pushed surplus steel into Europe, especially from Turkey, which has overtaken China as the EU's biggest foreign steel supplier.
Turkey, whose economy is in recession, is likely to suffer from a no-deal British exit from the EU because it is part of an EU customs union and would lose open access to the British market.
A spokesman for Britain's Business, Energy and Industrial Strategy department said the government would "leave no stone unturned" to achieve a good solution.