A consortium led by Qatar's state investment fund is preparing a knockout bid for Thames Water worth as much as £8bn.
This is £1bn more than the value other bidders originally gave the UK's most valuable water company, which is being sold by German owner RWE.
An £8bn bid by Qatar, which has teamed up with the investment bank UBS, would be hard to beat. Final-round bids are due on Saturday.
Two other bidders - consortia led by Guy Hands's private equity firm Terra Firma and Australian bank Macquarie - remain in the fray. But Terra Firma's interest is thought to have cooled in the face of Qatar's financial muscle. Ofwat regulator Philip Fletcher has also insisted that Thames' debt must remain at investment grade. This would make a highly leveraged acquisition, which private equity firms such as Terra Firma specialise in, harder to pull off.
Macquarie remains keen on Thames, but it is not clear if it is prepared to match Qatar's planned bid. A team of 30 investment bankers has been working on the offer over the summer. Competition rules make it difficult to own more than one water company, and so to avoid any competition issues, Macquarie sold its existing water company, South East Water, for £665m to funds owned by fellow Australian bank Westpac last week. But the Qatar-led consortium still remains favourite to land Thames Water.
RWE, which is being advised by Deutsche Bank and Goldman Sachs, could decide to float Thames instead of going ahead with a straight sale. The German parent has been conducting a "dual-track process" and will decide at the end of this month whether it will raise more money through an IPO or a sale. But an £8bn bid from Qatar would make the sale option more likely.
The Qatari government sees the UK as a stable, long-term environment in which to invest, particularly compared to the Middle East. It also wants to make up ground on neighbouring Dubai, where investors have become serial buyers of Western assets.Reuse content