Kennedy has come through the ranks at City and is a regular in club's Elite Development squad.
The 20-year-old is highly-regarded at City and is tipped for a big future at the Etihad.
City feel Kennedy would be best served to go out on loan in a bid to gain some valuable first-team experience.
A number of clubs are thought to have enquired about taking the England Under 19 international on loan, but Leicester are poised to win the race for his services.
Leicester boss Nigel Pearson is keen to bolster his defensive ranks and is ready to sign Kennedy on a youth loan.