Consortia led by Macquarie and Terra Firma will table first-round bids early next month for Thames Water, which is valued at up to £8bn.
The company's German owner, RWE, which has said it will dispose of the UK's largest water company either through a straight sale or initial public offering, is now understood to favour the sale option.
A sale would be set at a premium to Thames Water's stock market valuation and so would generate more cash for its parent company, which is being advised by Deutsche Bank and Goldman Sachs.
The volatility in stock markets has also made floats, particularly of this size, more difficult. And the recent negative publicity surrounding Thames Water could make a listing less attractive to retail investors. Last week the water regulator Ofwat said it would fine the company for poor customer service.
RWE is insisting, though, that the "dual track" process to dispose of Thames Water is still on course. It will begin pre-marketing for a float in September, and will decide later that month or in October whether to opt for a sale or listing.
Bankers often hold the possibility of a float over the heads of prospective bidders to ratchet up the final price. RWE is prepared to offer members of the bidding consortia - which include pension, infrastructure and hedge funds - shares in Thames Water if a float takes place. RWE is looking to sell all the shares, without retaining a minority stake, in the event of a flotation. Utility companies such as Scottish and Southern Energy, which has expressed an interest in Thames Water, could also take a stake.
The Australian bank Macquarie has made preparations to offload the £400m water company it already owns, South East Water, to avoid competition concerns hampering its bid for Thames Water.Reuse content