France's Peugeot mulls capital tie-up with Dongfeng: report

PARIS (Reuters) - French carmaker PSA Peugeot Citroen (UG.PA) has mandated two banks to study a possible capital tie-up with its Chinese partner Dongfeng , business daily Les Echos reported on Tuesday.

Several options are on the table which aim to strengthen Peugeot's international presence while preserving its current alliance with General Motors (GM), the paper said.

Among these, Dongfeng could take a direct stake in Peugeot through a capital hike, but this option was likely to irk GM, the French company's second-largest shareholder behind the Peugeot family with a 7 percent stake, the paper said.

Another option could be to "compartmentalize" the two partnerships by creating a Peugeot-Dongfeng joint venture that would focus on emerging markets, adding that Peugeot would in that case transfer some assets in exchange for cash.

"The company does not comment on rumors," a spokesman for Peugeot told Reuters. "We are permanently exploring new possibilities to develop and strengthen our partnership with Dongfeng."

Reuters reported in June that Peugeot's founding family had offered to give up control of the automaker as it tried to revive plans for a closer tie-up with GM backed by a fresh capital injection.

Peugeot had also held inconclusive discussions about selling a stake to a Dongfeng-led consortium, sources told Reuters at the time.

Earlier on Tuesday, the Association of European Carmakers reported a 4.9 percent drop in European car sales in September, with Peugeot's registrations down 18 percent as the company lost more ground to premium and Asian rivals.

(Reporting by Natalie Huet and Benjamin Mallet; editing by David Evans)