STC, Saudi Arabia's largest telecoms operator, sent a request for proposals to international and local banks last week for Solutions by STC(STCS), said the sources, who declined to be identified as the matter is not public.
The company did not communicate with banks its planned deal size, they said.
STCS last year had over 5 billion riyals (£1 billion) of revenues and profit in the range of 500 million riyals, which would be a sizable offering, they said.
The company's valuation could be around 9 billion riyals, if it garners 18-20 times its earnings multiples, one of the sources said.
The IPO size could be around $500 million (£388 million) if the company sells 20%, the source said.
STC did not respond to a request for immediate comment when contacted by Reuters.
The country has witnessed a flurry of public offerings this year as companies tap into Saudi demand for shares since oil giant Aramco's record IPO last year.
Saudi Arabia is encouraging more companies to list in a bid to deepen its capital markets under reforms aimed at reducing its reliance on oil.
Supermarket retailer BinDawood Holding earlier this week set an indicative price for its initial public offering, seeking to raise as much as 2.19 billion riyals in a Riyadh listing.
By Hadeel Al Sayegh and Saeed Azhar