* CEO says has considered closing firm, bankruptcy - letter
* Ofo faces pressure paying suppliers, refunding users
* Ofo in battle with Mobike for bike-share market (Changes sourcing on Ofo CEO letter, adds details and background)
SHANGHAI/HONG KONG, Dec 20 (Reuters) - Chinese bike-sharing startup Ofo, backed by Alibaba Group Holding Ltd, is battling "immense" cash flow problems and disbanding the firm has been considered as an option, its chief executive said in a letter to employees.
The firm, whose yellow-hued bicycles litter city streets around China, has been hit by a costly battle with main rival Mobike, owned by Meituan Dianping, that has eroded its ability to make payments to suppliers.
In the past week, millions of users, uncertain about Ofo's future, have also applied for a return of the deposits they had paid to use the platform, adding to the firm's financial woes.
"The whole of this year we've borne immense cash flow pressures. Returning deposits to users, paying debts to suppliers and keeping operations running," Dai Wei said in the letter posted on social media by Ofo's head of public relations.
"It has meant turning every renminbi into three," the CEO said, referring the China's currency. Dai added that he had thought "countless times" about ways to resolve the issues, "even of dissolving the company and applying for bankruptcy".
Ofo and Alibaba were not available for comment on Thursday.
Dai, also Ofo's founder, added he was determined to keep the company afloat. "As pressures mount we must endure, as difficulties grow we must find ways to overcome them," he said in the letter dated Dec. 19.
Ofo, which started in university campuses in Beijing and expanded to countries around the world, has become something of a cautionary tale about the rapid debt-fuelled boom and bust of new technology enterprises in the country.
China's bike-sharing industry has seen firms burn through hundreds of millions of dollars in the fight to dominate key cities, with several going under or taken over.
Ofo's smaller peer, No.1 Bicycle, halted services in February, while Bluegogo, facing financial pressure late last year, ended in a tie-up with ride-hailing giant Didi Chuxing.
In August, Reuters reported that Didi and Alibaba's Ant Financial were in talks with Ofo for a joint buyout, potentially valuing the startup at up to $2 billion. (Reporting by Adam Jourdan in Shanghai, Kane Wu in Hong Kong, Supriya Roy in Bengaluru, additional reporting by Pei Li in Beijing; Editing by Anil D'Silva and Himani Sarkar)