DUBAI - Engie-backed National Central Cooling, known as Tabreed, and CVC are in exclusive talks to buy Abu Dhabi-based Multiply Group's district cooling business in a deal expected to value the unit at more than $1 billion, two sources told Reuters.

Tabreed and private equity firm CVC were the top bidder for PAL Cooling Holding (PCH), the sources familiar with the matter said, adding that bilateral talks with the seller had started.

One of the sources said the bid was close to $1.1 billion.

The interest in PCH highlights how international buyout groups are increasingly looking to invest in the Gulf region as governments there strive to diversify their economies from oil.

In a statement, Tabreed said it did not comment on market rumours or speculation, adding any material transactions would be disclosed to the market as and when they are finalised.

CVC declined to comment, while Multiply Group did not immediately respond to a request for comment.

Reuters reported in April that CVC was working with Tabreed to jointly bid for PCH.

District cooling plants, which deliver chilled water via insulated pipes to cool offices, industrial and residential buildings, have been developed as a more economical and environmentally friendly alternative to air conditioning.

They are popular in the United Arab Emirates and elsewhere in the Arabian Peninsula, where summer air temperatures can soar above 50 degrees Celsius (122 degrees Fahrenheit).

Founded in 2006, PCH has several plants in Abu Dhabi with a combined design capacity of 242,000 refrigeration tonnes, according to its website.

Reuters reported in April that the sale had drawn interest from bidders including KKR, I Squared Capital, Investcorp and TAQA, and was expected to fetch about $1 billion.

Multiply is controlled by IHC, whose chairman is Sheikh Tahnoon bin Zayed Al Nahyan, the UAE's national security adviser and brother of the country's president who controls a sprawling business empire including two sovereign wealth funds.

(Reporting by Hadeel Al Sayegh Editing by Mark Potter)