(Bloomberg) -- Sao Paulo’s government is inclined to sell a 30% stake in Latin America’s largest water utility when it’s privatized, according to a person familiar with the negotiations. 

Legislators approved a public share sale for Cia. de Saneamento Basico do Estado de Sao Paulo, known as Sabesp, in December and the government must now decide how much of its controlling 50.3% stake to divest. While discussions are still ongoing, the person said consensus seems to be building around keeping about 20% of the company in state hands. 

Shares in Sabesp fell by as much as 1.3% on Monday, before paring some of those losses to trade at 79.53 reais at 1:22 p.m. in Sao Paulo. Investors doubt the government can offer a 30% stake in one go, according to Tiago Cunha, manager at ACE Capital, and the market is now trying to understand how it will make this offer. “They can do this in two stages, via auction or in a competitive process,” he said by email.

The government wants to maintain a role within the company to ensure it meets an ambitious goal of universalizing services by 2033, according to the source, who spoke on condition of anonymity because the negotiations are private. 

By law, the government must put 30% of the proceeds of the share sale into a fund for universalization, with the remainder going into state coffers. Sao Paulo’s budget sees 10 billion reais ($2 billion) coming from privatizations this year, most of which will come from Sabesp.

Sabesp Chief Executive Officer André Salcedo expects the share sale to begin in May. That schedule remains on track, the source said, adding that the offer should happen by the end of the month. Before then, the company has to renegotiate its contract with 376 municipalities, which will hold elections in October. 

Talks with technical teams from the municipalities are well advanced, the person said, and the state expects a substantial majority of them to agree to the deal, which includes remedies to mitigate tariff increases. Sabesp’s privatization, however, doesn’t require all of the municipalities to sign off, the source said.

Sao Paulo’s Department of Environment, Infrastructure and Logistics said that “the terms of the public offer are still under study and will be announced when completed.”

(Updates with share moe and analyst comment the 3rd paragraph.)

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