PARIS, Feb 13 (Reuters) - PSA Peugeot Citroen and Banco Santander are close to agreement on a European car loans alliance that the French carmaker plans to unveil alongside a recapitalisation deal with Chinese partner Dongfeng, sources said on Thursday.
Peugeot and Santander will create a sales financing network eventually replacing the French state guarantees that are keeping the carmaker afloat, according to three people familiar with the matter, who declined to be named because the talks are private.
Under the agreement, Madrid-based Santander would enter 50-50 joint ventures with Banque PSA Finance in European markets and pay cash to acquire a portfolio of loans from the carmaker's financing arm, the sources said.
"The plan is to announce a package of agreements next Wednesday," said one.
After months of talks, Dongfeng Motor Group and the French government have an outline deal to take matching Peugeot stakes through a 3 billion euro ($4.1 billion) capital increase followed by a warrants issue worth up to 1 billion more, sources have said.
Peugeot had no comment on any confidential discussions under way with potential or existing partners, a spokesman said. Santander also declined to comment.
The Dongfeng tie-up would deepen Peugeot's industrial cooperation with its Chinese joint venture partner but do little to address the European underperformance behind its mounting losses and its junk-rated debt, analysts say.
Successive Peugeot ratings downgrades forced France to intervene in October 2012 by guaranteeing 7 billion euros of Banque PSA Finance borrowing, part of a government-brokered rescue totalling 18.5 billion.
The deal with Santander, Peugeot's historic partner in Brazil, would create a group of joint ventures across Europe, according to people working or briefed on the plan.
It would complement Peugeot's overseas lending ventures with banks including Societe Generale and Spain's BBVA , helping the company refinance at competitive rates after the French guarantees expire in 2016.
"Most of the future financing would be supported by Santander," said one of the sources, adding that Peugeot hoped to announce the plan along with the Dongfeng deal and 2013 financial results on Feb. 19.
"There are 80 people working full time on the deal at the moment," he said.
But the Peugeot-Santander push comes too late to extricate the carmaker from the French government's grip, which tightened with the 2012 loan guarantees. In return, ministers set up a Peugeot oversight committee and appointed former civil servant Louis Gallois to the board.
The government and Dongfeng are set to acquire holdings of about 14 percent each in Peugeot's capital increase.
Board member Patricia Barbizet is no longer a candidate to succeed Chairman Thierry Peugeot, leaving Gallois as the most likely appointee, sources said. ($1 = 0.7359 euros)
(Additional reporting by Gilles Guillaume and Pascale Denis in Paris and Sarah White in Madrid; Writing by Laurence Frost; Editing by Andrew Callus)