In what would be one of the largest utilities deals in years, Citi is seeking to offload its 30 per cent holding in the company which has seen its value rocket since it bought into the firm in 2008.
The decision to sell comes after Ofwat chief executive Jason Cox said he was open to consolidation in the sector, leading to speculation there will be a tide of utilities mergers and acquisitions.
Last year the regulator set out a new pricing regime for water companies which tightly controls the prices they are allowed to charge customers between now and 2020.
The new regulations have increased impetus for the water companies to consolidate as they seek economies of scale.
Citi has recruited Evercore investment bank to find a suitable buyer, and Deutsche Bank and M&G are also reportedly looking to wind down their 23 and 10 per cent stakes respectively.
Yorkshire Water is the UK’s fifth largest water company, supplying more than 4.5m people.
Citi acquired its holding in the company as part of a consortium alongside Singaporean sovereign wealth fund GIC, which is believed to be retaining its stake.