French engineering company Schneider Electric SA (SCHN.PA) has delayed the roughly $1.4 billion auction of its sensors business because of turbulence in financing markets, people familiar with the matter said.

Schneider, which hired JPMorgan Chase (JPM.N) to sell its Custom Sensors & Technologies subsidiary, had initially planned to start the auction in late August or after the U.S. Labor Day in early September, sources told Reuters previously.

But Schneider has postponed the process by at least several weeks as the volatile financing markets has made it harder and more expensive to complete deals for private equity buyers, which have shown strong early interest in the unit, the people said familiar with the matter said.

Private equity buyouts are typically financed with leveraged loans and high-yield bonds, which carry some of the highest interest rates and often are among the first financing to be withdrawn when credit tightens.

When banks commit to deal financing in a volatile market, they often put in place a lot of flex, which gives lenders the ability to raise a loan's interest rate as long as it stays within an agreed-upon range. That means a buyer would either have to assume additional risk, or bid a lower price to the seller to compensate for that risk.

Given the state of the financing markets, Schneider is not going to rush to the market with that (asset), said one of the people. It's pretty big, and I don't think now is the right time to launch a 1 billion euro ($1.36 billion) process.

Schneider still intends to sell the Moorpark, California-based unit, which makes sensors for the automotive, aeronautics, transportation, energy and infrastructure industries, the people said.

The sensors business has more than 4,300 employees worldwide and posted 2010 sales of $571 million, according to the company's website.

Representatives for Schneider were not immediately available for comment.

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