By Anousha Sakoui, M&A Correspondent

A Chinese sovereign wealth fund is poised to buy a stake in the water network that serves London, in what would be the fund?s first acquisition in the UK following investment talks with British politicians.

The deal follows a visit to China this week by chancellor George Osborne, who has been urging Chinese investors to inject money into UK infrastructure projects. Beijing has been seeking more lucrative returns than those available from low-yielding government bonds.

The acquisition of about 10 per cent of the holding company that owns Thames Water is close to being agreed by China Investment Corporation, the country?s $410bn sovereign wealth fund, according to one person familiar with the situation. The Chinese investment was confirmed by a senior government official.

In December Abu Dhabi Investment Authority, one of the world?s largest sovereign wealth funds, acquired about9.9 per cent of Kemble Water, which is the holding company for Thames Water, from a consortium of investors led by Australian investment bank Macquarie. The bank declined at the time to reveal terms of the sale.

Mr Osborne this week held ?very serious meetings of substance? during a short visit to Beijing, that included Lou Jiwei, chairman of CIC, as well as the Industrial and Commercial Bank of China, the world?s biggest bank by market capitalisation. Mr Lou wrote in the Financial Times last November that he saw a ?win-win? situation where Chinese funds would help to update the west?s infrastructure – starting with Britain – on the grounds that such schemes offered solid returns.

He praised Britain as being ?one of the most open economies in the world? with a ?sound legal system?. In his article, Mr Lou suggested Chinese companies and investors wanted to own and operate infrastructure in the west as well as help build it.

Thames Water, which provides sewerage services to 14m customers and water to 8.8m in London and the Thames valley, was sold for an enterprise value of ?8bn by German utility RWE in 2006, which included ?4.8bn in cash and ?3.2bn in debt.

The water company is owned by a consortium of investors, the largest of which are funds managed by Macquarie. The Australian bank also manages the investment in the utility on behalf of other shareholders.

The Macquarie-led consortium, which beat three other serious bidders in the 2006 auction including one led by the Qatar Investment Authority, said that it remained committed to managing Thames Water as its majority owner.

Thames is the largest of the 10 water and sewerage companies in England and Wales by both regulatory capital value and number of customers served.

Macquarie declined to comment and CIC was not available for comment.

? The Financial Times Limited 2012