Two Chinese private equity funds are reported to be close to finalizing a deal to buy the asset management arm of Franco-Belgian financial group Dexia (DEXI.BR) as part of the wind down of what was once the world's biggest lender.

Reuters reported in June that Dexia was seeking to sell its Dexia Asset Management unit for about 750 million euros, although a report in Friday's Financial Times put the figure at 500 million euros ($615 million).

The asset management sale would be welcome news for the French and Belgian governments, which have been grappling both with the spiraling costs of the Dexia wind down as well as how to replace it as a municipal lender.

Dexia was forced to divest businesses after becoming the first bank to require a rescue during the euro zone crisis. Belgium, France and Luxembourg joined forces to bail out the lender last October after it was brought down by a funding crunch.

It has already sold Banque Internationale a Luxembourg, the half of RBC Dexia Investor Services that the group owned. And, in early June, Dexia signed a deal to sell Turkey's DenizBank (DENIZ.IS) to Russia's Sberbank (SBER.MM) for 3.09 billion euros.

One of China's largest private equity groups, Hony Capital, is teaming up with GCS Capital and the pair has been selected as the preferred bidder to buy the business, the Financial Times said, citing people familiar with the situation.

An agreement in principle was reached during talks in Paris on Wednesday, and was set to be signed next week. The funds had offered more than 500 million euros for the unit, the newspaper said.

Dexia and Hony both declined to comment. GCS could not immediately be reached for comment.

Dexia is one of a handful of European banks looking at selling off asset management operations, which for buyers offer the upside of steady cash flow and little regulatory risk.

Belgium, which last year bought Dexia's Belgian retail arm for 4 billion euros, has been negotiating to get France to assume a bigger chunk of up to 90 billion euros in state guarantees needed to cover its funding requirements.

Under a preliminary agreement, which Belgium is seeking to modify, it is responsible for 60.5 percent of the guarantees, France for 36.5 percent and Luxembourg for 3 percent. The states have currently made available up to 55 billion euros in guarantees, of which Dexia is already using 49 billion.

At the same time, the European Commission has expressed concern that the guarantees could constitute state aid and has said it had doubts that they were compatible with the European Union single market.

French Finance Minister Pierre Moscovici said on Thursday that an agreement with the Commission on the aid package was expected soon.

France is meanwhile struggling to find new sources of financing to replace Dexia, which until recently was its dominant lender to local governments and other public entities like hospitals.

France's La Banque Postale, which has been designated to succeed Dexia as the country's main municipal lender, said earlier this month it would double its capacity to lend to local governments after a spike in demand for credit.

($1=0.8130 euros)

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