Highstar Capital Mulls Sale of Utilities Inc.

Buyout firm Highstar Capital is exploring the sale of water and wastewater company Utilities Inc., whose value is seen at about $500 million, Reuters wrote. New York-based Highstar acquired Utilities Inc. from Dutch utility Nuon in April 2006.

(Reuters) – Buyout firm Highstar Capital is exploring the sale of water and wastewater company Utilities Inc, whose value is seen at about $500 million, according to several sources familiar with the matter.

New York-based Highstar, which manages over $5 billion of infrastructure and energy investments, acquired Utilities Inc from Dutch utility Nuon in April 2006. Utilities Inc serves over 305,000 customers in 15 states.

Highstar has hired Citigroup Inc and Royal Bank of Canada to advise on the sale, according to two of the sources.

Bidders for the company could include infrastructure funds run by Macquarie Group Ltd and JP Morgan Chase & Co , as well as strategic buyers, sources said.

Macquarie and JP Morgan declined comment.

But many cautioned the deal could be difficult to complete because buying Utilities Inc would require approvals from regulators in so many states.

Highstar, whose investments include gas pipeline owner Kinder Morgan Inc and London City Airport, did not respond to a request for comment. Citi declined to comment, while RBC did not immediately respond to a request for comment.

Infrastructure funds such as Highstar settle for lower returns than conventional buyout firms in exchange for safer assets and more predictable cash flows.

Private equity interest in the U.S. water utility sector has led to only few deals. Last year, JPMorgan’s infrastructure fund bought SouthWest Water and Carlyle Group agreed to buy Park Water Company.

Opportunities for investors have been few and far between as water privatization remains a politically sensitive issue in the U.S. (By Michael Erman and Greg Roumeliotis)