Chrysler Group LLC is set to pay off its government loans on Tuesday, saving it more than $300 million a year in interest payments and allowing Fiat to raise its stake in the U.S. automaker to 46 percent, its CEO said.

The move aims to put Chrysler on firmer financial ground and draw it closer to Italy's Fiat SpA , two things investors and bankers said would make Chrysler more attractive in an initial public offering that could come this year or next.

Chrysler raised $7.5 billion in new loans last week. Much of that money, along with $1.3 billion in cash from Fiat, will go toward repaying some $5.9 billion in loans and interest to the U.S. government and $1.6 billion in loan debt to the Canadian government.

Sergio Marchionne, the chief executive of both Chrysler and Fiat, said on Monday the refinancing was a sign of Wall Street's confidence in Chrysler about two years after it emerged from its U.S.-funded bankruptcy and took a federal bailout.

They (investors) know that we're here to stay, and a lot of them were and are betting on the fact that we're going to be here for a long time, Marchionne said at the grand opening of Fiat's first Michigan dealership in a Detroit suburb.

It is our expectation tomorrow that Chrysler will begin to regain its independence, its accountability to the public markets, as part of the long and painful restructuring process that began back in 2008, Marchionne said.

When asked about the timing of the IPO, he said discussions needed to take place with the healthcare trust affiliated with the United Auto Workers union, known as the VEBA, which wants to cash out its current majority stake in Chrysler.

Their objective is money for the trust, Marchionne said, adding that Chrysler had done a lot of work with the U.S. Securities and Exchange Commission in preparation for an IPO.

Marchionne said that Fiat's current 30 percent stake in Chrysler will rise to 46 percent when it pays off the loans.

It goes up as soon as the money transfers, he said.

He reiterated that Fiat hopes to boost its Chrysler stake further by the end of the year.

He added that over time Fiat could increase its stake to as much as 76 percent in part by acquiring a portion of the stake held by the VEBA.

(Reporting by Ben Klayman; additional reporting by John Crawley in Washington; editing by Carol Bishopric and Tim Dobbyn)

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