UPDATE 2-Deal with Canada's CPPIB helps Brazil's Igua in Cedae privatization -source

(Adds details on Igua’s interest in privatizations, advisers working on the Cedae sale)

SAO PAULO, March 22 (Reuters) - Canadian pension fund CPPIB is acquiring a 45% stake in Brazilian sanitation company Igua Saneamento SA for 1.18 billion reais ($213 million), according to a statement on Monday.

CCPIB said it will acquire 514 million reais ($93.4 million) in new shares issued by Igua Saneamento and 664 million reais in existing shares.

The deal strengthens Igua’s bid in the privatization of Rio de Janeiro’s sanitation company Cedae, one source with knowledge of the matter said on Monday.

Igua has hired the investment banking units of Banco Bradesco SA and Banco BTG Pactual SA to advise on the bid in the auction scheduled for April 31, added the person, who asked for anonymity to disclose private discussions.

The CPPIB backing may also help fund another deal the company is considering, the privatization of sanitation company Corsan, in Rio Grande do Sul state, the source added.

After CADE approves the CPPIB acquisition, existing investor Alberta Investment Management Corporation (AIMCo) will hold a 39% stake in Igua, Brazil’s development bank BNDES will have 11% and private equity firm IG4 Capital Group will keep 5%.

CPPIB said two private equity funds managed by asset manager IG4 will remain the controlling shareholders of Igua.

This new funding round underscores investors’ appetite for the sanitation sector as a new law passed in June is expected to prompt states and municipalities to privatize water and sewage companies and to universalize services in Brazil.

For the time being, Igua is suspending plans for an immediate initial public offering that had been expected for this year. However, Igua keeps medium-term plans for a listing. The CPPIB acquisition contract has a clause in which the company commits to pursuing an IPO within three years. ($1 = 5.5057 reais) (Reporting by Carolina Mandl and Tatiana Bautzer in Sao Paulo Editing by Bernadette Baum and Matthew Lewis)