SEOUL (Reuters) - SK Hynix Inc 000660.KS still wants an equity stake in Toshiba Corp's 6502.T chip unit, it said on Wednesday, complicating a bid for the business by a consortium it is part of.

FILE PHOTO: The logo of SK Hynix is seen at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

Talks with a Japanese government-backed group chosen by Toshiba as a preferred bidder for its chip business have stalled due to what sources say are proposals by SK Hynix that its financing be done via convertible bonds.

In the first public acknowledgement that it wants a stake in the world’s No. 2 NAND producer, SK Hynix chief executive Park Sung-wook told reporters that it is continuing to negotiate the purchase and will not drop its equity plan.

The preferred bidder group also includes the state-backed fund Innovation Network Corp of Japan, the Development Bank of Japan and U.S. private equity firm Bain Capital.

But the stand-off resulted on Tuesday in Toshiba saying it was again talking with suitors Western Digital Corp WDC.O and Foxconn 2317.TW due to the lack of progress.

The embattled conglomerate does not want its South Korean rival to have an equity or management influence in the chip unit - a stance it has taken to satisfy a government that wants the technology to remain under domestic control.

Some Japanese officials had hoped SK Hynix may back down from its demand for a stake, sources have said.

Hit by massive cost overruns at its now bankrupt U.S. nuclear unit Westinghouse, Toshiba needs billions of dollars in fresh loans to tide it over before it can complete the $18 billion sale of the memory chip unit.

It sold its medical equipment business to Canon Inc for $6 billion last year and its Landis+Gyr smart meters unit aims to raise up to $2.5 billion, but that will not be enough to plug the hole in its balance sheet.

And although Japanese banking sources said on Tuesday that Toshiba has regained access to a $6 billion credit line, lenders have also imposed tough conditions.

Toshiba has told creditors it will need 1 trillion yen in fresh loans during the current financial year through March, banking sources have said previously.

Sources said Toshiba's banks, which include Sumitomo Mitsui Banking Corp 8316.T and Mizuho Bank 8411.T, allowed it to withdraw 100 billion yen ($880 million) in loans late last month but must seek permission every week to extend the loan, despite a previously-agreed commitment line of 680 billion yen.

Another obstacle in the chip unit auction has been Toshiba’s strained ties with Western Digital, which bought SanDisk, Toshiba’s memory chip business partner, in May last year.

Last month, Western Digital sought a U.S. court injunction to prevent Toshiba selling the chip unit without its consent. A hearing on that request is scheduled for Friday.

The banking sources said they were worried the conflict could end up scuppering the sale as well as the chip business’ long-term prospects. One said he hoped that Toshiba and Western Digital would work to resolve their conflict.