In its latest bid to increase capital, embattled PSA Peugeot Citroën, Europe's second largest carmaker is discussing with Chinese automaker Dongfeng Motor about intensifying its current industrial and commercial alliance to fund its reoganization.

In a press release dated January 20, Peugeot confirmed a possible 3 billion euro investment deal through a capital increase. The deal would be facilitated through a rights offering to Dongfeng, and the French government.

The 3 billion euro capital increase proposal is one of many the French automaker is considering in order to keep its ailing operations afloat amidst weak European sales and increasing operating costs. Analysts are predicting Peugeot to declare another year of loss for 2013.

Several reports over the weekend claimed that the negotiations were already a done deal prompting a trading halt issued to Dongfeng stocks at the Hong Kong Stock Exchange on Monday.

Both companies have further clarified with their respective press statements:

"The Supervisory Board at its meeting on February 5, expressed its full support for the project as presented by the Managing Board and authorized the latter to continue negotiations with a view to obtaining the Supervisory Board’s approval when it meets on 18 February. The Company cannot give any assurance regarding the outcome of the project," stated Peugeot on February 5.

"As at the date of this announcement, the Company has not entered into any agreement in relation to the Potential Transactions," stated Dongfeng in their February 10 statement.

The loss-making French carmaker is facing a turbulent time as it struggles to raise funds for industrial, development and commercial investment for its future products and overseas expansion.

The announcement on the outcome of negotiations is expected on February 19 when Peugeot releases its 2013 annual report.