* Indonesian group wants $1 bln for hypermart unit-sources
* Matahari wants to focus more on healthcare, property assets
* Merrill Lynch advising Matahari on the sale
* Matahari shares up 3.5 pct vs 0.3 pct fall in main index
(Adds detail on bidders, analyst quotes)
By Saeed Azhar and Jungyoun Park
SINGAPORE/SEOUL, Nov 2 (Reuters) - South Korea's Lotte Shopping and U.S. private equity firm Carlyle are in a race to buy Indonesia's Matahari hypermart business which the group hopes to sell for $1 billion, three sources said.
Matahari is selling Hypermart, Indonesia's second biggest hypermart chain after PT Carrefour Indonesia, as it tries to focus on its core healthcare and property assets.
The sale is a seen as good opportunity to raise exposure to Indonesia's retail sector as a healthy economy, forecast to grow 6.0-6.2 percent this year, and a booming stock market boosts consumption in Southeast Asia's biggest economy.
At least three to four preliminary bids went in last week for Matahari Hypermart, three sources familiar with the deal said.
"Lotte and Carlyle are in," said one of the sources, who asked not to be named because the bidding process is not public.
"Lippo group is trying to sell its non-core assets and put more focus in its prime assets in properties and health-care, that's why they want to sell Hypermart," said Ari Pitoyo, head of research at PT Mandiri Sekuritas in Jakarta, referring to Matahari's parent company.
"The retail business is fueled with intense competition while the margin is smaller around 7 to 9 percent compared with (higher) margins in properties and hospitals."
The sale process comes at a time when Carrefour, Europe's biggest retailer, hopes to sell its Singapore, Malaysia and Thai businesses for $1 billion and has set Nov. 5 as a deadline for the second round of bids.
It also comes just a few months after Matahari agreed to sell a 90.76 percent stake in retail unit Matahari Department Store to a joint venture with private equity group CVC Partners for $770 million.
INDONESIA APPEAL
Matahari's Hypermart owns 38 stores in 21 cities across Indonesia, ranking it behind market leader PT Carrefour Indonesia which operates 65 stores. The group declined to name the bidders.
Lotte, the fourth-biggest hypermart player in Indonesia, is South Korea's fifth largest conglomerate in terms of assets and has in recent years actively snapped up M&A targets across Asia in the face of an increasingly saturated retail market at home.
Last December, Lotte bought Chinese supermarket operator Times and operates 79 supermarkets in the country. In Indonesia, Lotte purchased Dutch wholesaler Makro in October 2008.
"Following the acquisition of Makro, Lotte has established itself well in Indonesia, and its pursuit of Matahari is a sign it wants to root itself more firmly in the country," said Ahn Ji-young, an analyst at IBK Securities.
"Rather than expanding in terms of country profile, Lotte wants to strengthen and focus more its operations in countries where it is already doing well, such as Indonesia and China."
Dairy Farm, seen as a potential bidder, declined to comment on whether it is interested in Matahari Hypermart.
Dairy Farm's unit in Indonesia, PT Hero Supermarket, is the third biggest in the hypermart business.
Bank of America's Merrill Lynch is advising PT Matahari Putra Prima, which is owned by Indonesia's Riady family.
Spokesmen at Merrill and Carlyle declined to comment.
Lotte is being advised by HSBC and UBS is advising Carlyle. Officials from Lotte and the banks declined to comment.
Matahari shares were up 3.5 percent, outperforming Indonesia's benchmark index, which was down 0.3 percent at 0513 GMT. (additional reporting by Harry Suhartono in SINGAPORE and Janeman Latul in JAKARTA; Editing by Dhara Ranasinghe)