CORRECTED-UPDATE 1-Eramet reaches deal to convert debt of New Caledonia nickel unit

(Corrects paragraph 3 to show it is the conversion of intra-group debt that has no impact on Eramet's consolidated accounts)

PARIS, March 4 (Reuters) - Eramet said on Monday it had reached an agreement with the French government to remove from its balance sheet hundreds of million euros of debt related to its loss-making nickel subsidiary SLN in New Caledonia.

Existing loans to SLN worth 320 million euros from the government ($347.42 million) and intra-group debt of a further 325 million euros will be converted into a 'quasi-equity' instrument, the group said.

The conversion of the intra-group debt has no impact on the group's consolidated accounts, it said.

The conversion will free SLN indefinitely from payments related to the debt but will not alter the capital of either SLN or Eramet, a spokesperson added by phone.

Eramet has a 56% stake in SLN, while the French state has a 27% stake in Eramet.

France's finance ministry did not immediately respond to a request for comment.

SLN's debt has been among issues addressed in negotiations to rescue New Caledonia's struggling nickel industry.

Nickel processing in the French South Pacific territory has been sapped by high energy costs, political tensions and competition from cheaper Indonesian supply.

Reporting annual results on Feb. 21, Eramet had said talks with France over SLN's debt were very advanced.

Eramet, which has refused to inject more funds into SLN, said it would continue to provide operational support to SLN "over time", depending on potential financial support for SLN from the French government and New Caledonian authorities.

Paris had been seeking to finalise a deal in January to salvage New Caledonia's three nickel processing firms, but talks are continuing.

SLN faces a deadline of April 10 to emerge from a separate court conciliation process aimed at overhauling its business.

France has offered loans to help to avert the collapse of New Caledonia's two other nickel processing companies, Koniambo Nickel SAS (KNS) and Prony Resources.

KNS co-owner Glencore, however, last month suspended output at the KNS processing plant while it seeks a buyer for its stake. ($1 = 0.9211 euros) (Reporting by Gus Trompiz, editing by Tassilo Hummel and Ros Russell)