* Sunday Times reports Orion Capital looking at Intu
* Two bids for Intu failed last year
* Intu hit by retail failures
* Shares jump more than 20% (Adds details on retail sector, company background, analyst comment)
By Noor Zainab Hussain and Shashwat Awasthi
Sept 9 (Reuters) - Shares in Britain's Intu Properties surged as much as 22% on Monday on speculation a private equity group could buy out the shopping centre operator, which has been hit by high-profile retail failures and a hefty debt burden.
The Sunday Times reported http://bit.ly/2HUdHxb that private equity firm Orion Capital Managers, founded by Aref Lahham, is in the early stages of finding partners for a buyout of Intu, which owns the Trafford Centre in Manchester.
Intu shares, which have shed nearly two-thirds of their value this year, erased some early gains and were 10.9% higher at 40.5 pence by 0945 GMT, a far cry from their peak of 947 pence in 2006. The company is now valued at only around 540 million pounds ($665 million).
Intu declined to comment on the Sunday Times report. Lahham said on LinkedIn that Orion Capital would not comment on its holdings. It was not immediately clear how much of Intu Lahham owns.
Renewed interest in Intu would come after a consortium led by major investor John Whittaker dropped a 2.9 billion-pound bid last November.
The consortium's U-turn came after rival Hammerson abandoned a 3.4 billion-pound bid to buy Intu in April last year.
The closure of shops and renegotiation of rent agreements have led to uncertainty over the value of the income from retail properties. Many British property developers have been looking to distance themselves from the ailing retail sector.
Intu has also been hit by company voluntary agreements - an insolvency procedure used by retailers to restructure leases - from brands like Debenhams, Toys R Us, House of Fraser, New Look and HMV.
Intu, which has guided to lower net rental income for three years straight, has been looking to preserve cash and reduce its debt by selling assets.
"There are three arguments for caution (for buyers): the NAV (net asset value) per share figure at Intu continues to go lower ... the company has 4.7 billion pounds in net debt; and bids for Intu have failed before," said Russ Mould, investment director at AJ Bell, said.
RETAIL AND BREXIT
Intu, which scrapped its dividend earlier this year and changed management, in July adopted a new five-year strategy to reshape its business and focus on fixing its balance sheet.
Mould said a takeover of Intu could prompt a wider reappraisal of the sector, especially for those firms with big exposure to retail.
"Hammerson, British Land, Land Securities, Capital & Counties ... are all being tarred with the same retail-and-Brexit brush to varying degrees and all trade at big discounts to NAV," he added. ($1 = 0.8113 pounds)
(Reporting by Shashwat Awasthi and Noor Zainab Hussain in Bengaluru; Editing by Arun Koyyur and Susan Fenton)