(Adds details around the deal, background, advisers)
By Esha Vaish
May 2 (Reuters) - A consortium that includes German insurer Allianz and HICL Infrastructure is to buy Affinity Water Ltd, the largest water-only supply firm in England and Wales by revenue, through two transactions.
The consortium will acquire a 90 percent stake from Morgan Stanley Infrastructure and M&G Investments' Infracapital for 687 million pounds ($884 million), and the rest from water company Veolia, the sellers said.
The deal is the latest acquisition of British infrastructure by overseas investors, as pension schemes, sovereign wealth funds and others look to take advantage of stable returns.
Last month, a consortium of Canadian and Kuwaiti investors agreed to buy a minority stake in Thames Water, Britain's largest water firm, from funds managed by Macquarie.
Under the terms of Tuesday's deal, British infrastructure investment firm HICL and Allianz will each take an about 36.6 percent stake in Affinity, while the third member of their consortium, fund manager DIF, will acquire the remaining stake.
HICL said it would pay 269 million pounds for its stake, giving the entire deal an equity value of about 735 million pounds. Affinity had net debt of 854.3 million pounds as of Sept. 30, 2016.(bit.ly/2pBgIYN)
Both transactions are expected to complete this month.
Morgan Stanley and Infracapital formed Affinity Water through the purchase of Veolia Water's British water supply operations in June 2012 for 1.1 billion pounds.
Affinity's shareholders began a strategic review of the business on March 14, but no formal auction sales process was launched.
HICL said the deal was in line with its strategy to buy low-risk infrastructure investment assets that produce long-term income and would be accretive to its existing portfolio in terms of total returns.
Its shares were down 2 percent at 170.8 pence at 1329 GMT, making it one of the top percentage losers on London's midcap index.
Affinity supplies water to 1.5 million homes and businesses and maintains water supply infrastructure. It had a regulatory capital value - a key industry metric - of 1.156 billion pounds as of March 31.
The company said it did not expect the sale to result in any operational changes.
Nomura was adviser to the consortium, while Citi acted as financial advisor to Infracapital and Morgan Stanley Infrastructure. ($1 = 0.7768 pounds) (Reporting by Esha Vaish in Bengaluru; Editing by Mark Potter and Jane Merriman)