A CANADIAN pension fund is thought to be planning a £1.7bn bid for Northumbrian Water.

The Ontario Teachers’ Pension Plan already holds a 27 per cent stake in the FTSE 250 utility company and is understood to have long wanted to take it private, according to The Sunday Times.

It is thought to have been holding talks with banks to put together the funding for the bid, as well having discussions with other funds, including Canadian investment group Borealis, about being partners in the deal.

Northumbrian Water provides 2.6 million people in the North-East with water and sewerage services, and a further 1.7 million in the South East, where it provides water services trading as Essex and- Suffolk Water.

The group’s shares closed at 258.6p on Friday, valuing the company at £1.34bn.

It is thought the Ontario Teachers’ Pension Plan would have to offer at least 25 per cent above this to win shareholder backing for the deal.

But the fund is unlikely to offer a larger premium on the company’s current value, as its existing stake in the group is likely to deter counter bids.

The pension fund, which controls assets worth about £54bn, is reported to have been spurred to make an offer after Ofwat handed down final pricing and spending limits for water companies until 2015, in November.

Rival utilities groups United Utilities and Severn Trent were both forced to cut their dividends in response to the new limits, but Northumbrian, which was among the first to accept the ruling, pledged to increase its payouts to investors.

The group said in November that rising business failures in its North-East heartlands had landed it with a £1.7m bad debt bill in the six months to September, although this was partly offset by higher prices.

But despite this hit, the firm’s interim pre-tax profits rose by 13 per cent to £87m – broadly in line with expectations – due to much lower interest payments on its £2.3bn debt.