Zinedine Zidane has identified Jesus Vallejo as Pepe's successor should the Portuguese leave Real Madrid, Marca reports.
The Blancos-owned 19-year-old has been on loan at Eintracht Frankfurt since the summer and has been performing admirably, leading the Bundesliga side to attempt to lengthen his stay in Germany. Zidane, it is said, is unwilling to let that happen.
For Pepe's part, the veteran's current contract expires at the end of the season, and with Chinese Super League teams courting the Portuguese's signature, talks over a new deal at the Bernabeu have stalled.
Pepe wants a two-year deal in Spain's capital, while the club are only willing to offer one, according to the report. Elsewhere, Manuel Pellegrini's Hebei China Fortune are said to have offered the centre-back a €10 million per year deal.
Despite his young age, Vallejo is reportedly seen as ready for a first-team call-up by the Madrid hierarchy and should return to take his place in the squad come the summer transfer window.