By Fang Yan

SHANGHAI, Oct 29 (Reuters) - Lifan Group, China's top motorcycle maker that is diversifying into car production, aims to raise up to $400 million in an initial public offering next year and is in talks with potential foreign investors to sell up to a fifth of itself before the IPO, its owner said at the China Europe International Business School's (CEIBS)  5th Annual China  Automotive Industry Forum 2007 on Monday Oct.29.

Speaking to Reuters on the sidelines of an industry event, Yin Mingshan said U.S insurer AIG (AIG.N: Quote, Profile, Research) and private equity firm Texas Pacific Group [TPG.UL] were among the possible candidates. AIG is currently doing due diligence.

"Several overseas firms have expressed an interest to take a stake in Lifan. We might sell no more than 20 percent stake to two to three partners if we do decide to bring in outside investors," said Yin, chairman of Chongqing Lifan Holdings Co, which controls Lifan Group.

Privately controlled Lifan may list its major assets, including the motorcycle and car assets, within the next six to nine months, raising between 1 billion yuan to 3 billion yuan ($401.4 million), he said.

Lifan would most likely float its shares in the domestic bourse, but Hong Kong could be an option if it gets regulatory approval. Chances for a dual listing, however, were slim.

He added major Chinese brokerage Guotai Junan Securities is advising Lifan for its planned IPO.

Lifan, whose motorcycles are exported to over 100 countries, mostly in the developing world, rolled out its first self-developed cars in January in China and overseas.

It is investing 2.4 billion yuan in phases, with current capacity of 150,000 units.

Sales of its compact cars, priced at between 50,000 yuan to 70,000 yuan domestically, came to roughly 10,000 units in 2006.

Sales are expected to surge 300 percent to 40,000 units this year, jumping to 80,000 units in 2008, he said.

Lifan, which modelled itself after Honda Motor (7267.T: Quote, Profile, Research), joins a small club of home-grown car makers such as Chery Automobile and Geely Automobile Holdings (0175.HK: Quote, Profile, Research) which are hoping to make their names globally.

Lifan has manufacturing plants in Vietnam, Turkey and Thailand and would open more such plants overseas.

It would make cars in Russia and Egypt in the future, Lifan said on its Web site.

In 2006, the firm booked 10.4 billion yuan in sales, with exports at $312 million. No comparative figures were provided. ($1=7.474 Yuan)