China's Dongfeng Motor will likely reduce its stake in PSA after hiring banks to study options, Reuters sources said.

Such a move could ease the French carmaker's planned merger with Fiat Chrysler.
The logo of Dongfeng Motor Corp is pictured at the Auto China 2016 auto show in Beijing, China, April 26, 2016. REUTERS/Kim Kyung-Hoon

The news agency said Dongfeng has a 12.2% equity stake in PSA and would have about half of that in the combined entity formed by FCA and PSA, which announced in October a planned merger to create the world's fourth-biggest automaker.

Reuters said a smaller Dongfeng holding would likely help get the deal past US regulators amid trade tensions between Washington and Beijing, an issue which has raised questions about the Chinese firm's next move since the PSA-FCA merger was announced.

Dongfeng, a long-standing partner of PSA, had sent banks a request for proposals to explore options for the stake several weeks ago, according to the Reuters sources. The company is now aiming to present its board of directors a share sale plan in the coming days, one of them added.

PSA declined to comment to Reuters while Dongfeng did not immediately respond to a request for comment.

Dongfeng is looking to reduce its holding in the merged entity of PSA and FCA to a level that would be acceptable to The Committee on Foreign Investment in the United States (CFIUS), three Reuters sources said.

CFIUS reviews deals by foreign acquirers for potential national security risks and has tightened its oversight of deals involving Chinese entities as Beijing and Washington remain locked in a heated trade and technology dispute.

Having a stake of over 5% in the merged FCA-PSA company could entitle Dongfeng to a seat on the board of the new firm, one of the Reuters sources added.

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