THE bidding is now starting for the "crown jewels" of Australia's newspapers - the Fairfax publishing empire.The John Fairfax Group Proprietary Limited - parent of the Sydney Morning Herald and the Age in Melbourne - is for sale. The seller is a receiver appointed by a syndicate of banks who pulled the plug on Fairfax last December after the publisher could not meet the interest payments on about $1.25 billion (Australian; US$980 million) in debt owed to the banks. Total debt is now $1.9 billion to $2 billion, including debts to trade creditors and United States junk-bond holders, says Des Nicholl, Fairfax's receiver and manager. The buyer will get a company with a strong newspaper franchise. The Herald (circulation 267,267) and the Age (circulation 234,083) are the quality newspapers in their markets. The main competition are tabloids produced by Rupert Murdoch's News Corporation Limited. The Financial Review (circulation: 76,637) is Australia's version of The Wall Street Journal, and the Sun-Herald (circulation 550,354) is a Sunday newspaper. In the last financial year, Fairfax made $110 million to $120 million in profits before interest and taxes, compared with $190 million the previous year. The drop is mainly due to the recession, which reduced classified advertising. "It's a very fine company with great potential," says Peter King, a former chief executive officer of Fairfax. On Aug. 23, Baring Brothers Burrows, the banking syndicate's adviser, ended the period for formal expressions of interest in buying Fairfax. There are four potential buyers: * A syndicate of Melbourne businessmen called Australian Independent Newspapers (AIN). * Tourang, a consortium of Conrad Black, the Canadian who owns the Telegraph, Britain's largest newspaper, Kerry Packer, an Australian media mogul, and Hellman and Friedman, a US investment group. * Tony O'Reilly, the chairman of H.J. Heinz and Co. and Independent Newspapers PLC, and John Fairfax, a relative of the founder of the company. * Jamison Equity, a Sydney group. Mr. Nicholl says the bidders are now meeting with the financial adviser and preparing their proposals. Final bids are expected to be in the $1.2 billion to $1.4 billion range. Mr. King, who left Fairfax in 1988, estimates the "true value" in the depressed economy could be as high as $1.5 billion. This might allow the bank syndicate, led by Citibank and ANZ, to get most of their loans back. Last December, Mark Burrows of Baring Brothers Burrows said a buyer would need to inject about $400 million in new equity into Fairfax to allow the company to reduce its total bank debt. Over the past month, the bidders have been trying to corral investors to provide some or all of the equity. The Melbourne AIN group won the backing of the AMP, the nation's largest insurance group, Commonwealth Funds Manage- ment, which manages government retirement assets, and National Mutual Life, another large insurer. However, the AIN group is not putting up equity of its own. Competitors say the lack of equity by the AIN businessmen is a weakness. "Traditionally institutions want some 'hurt' money so the consortium leaders would suffer if the company does not perform up to expectations," says Peter Hunt, a director of Bankers Trust Australia. Dr. O'Reilly says he will inject $100 million of his own money into Fairfax. His consortium plans to raise a total of $500 million in equity and reduce the total senior bank debt of Fairfax to the $500 million level. No matter who wins the bidding, there are plans to take Fairfax public within the next 18 months. This may allow some of the institutions to make a profit on their investment.