Thames Water has suffered another major setback in its bid to secure long-term survival. US private equity giant KKR has withdrawn from a proposed £4 billion rescue deal, deepening fears the utility may fall into government-supervised administration.

KKR, which had been selected as the company’s preferred investor in March, have cancelled the deal due to mounting political and regulatory uncertainty surrounding the UK water sector. Its exit comes despite a last-ditch intervention that reportedly included a call between KKR co-founder Henry Kravis and government adviser Varun Chandra.

In a statement, Thames Water described the development as “disappointing” but confirmed it is now working on an alternative recapitalisation plan, widely seen as a last-ditch effort to avoid administration.

Thames Water, which serves around 25% of the UK population, primarily across London and the South East, employs roughly 8,000 staff. Despite its scale, the company is grappling with £19 billion in debt, crumbling infrastructure, persistent leaks, and sewage discharge issues. Since its privatisation in 1989, it has transitioned from debt-free to one of the UK’s most indebted utilities. This reflects growing scrutiny over private ownership of essential infrastructure and the failure to reinvest adequately in long-term upgrades.

The collapse of the KKR deal came on the same day as the publication of interim findings from a high-profile review into the water industry, led by former Bank of England deputy governor Sir Jon Cunliffe. The review criticised the current regulatory regime as “chaotic,” warning that fragmented oversight had made the system incoherent, costly, and unattractive to long-term investors such as pension and insurance funds.

Thames is now effectively controlled by its lenders, and a consortium of senior creditors has prepared a fully funded equity plan. The company has confirmed it is engaged solely with this proposal and is in active discussions with Ofwat and other stakeholders.

While the company’s financial future remains uncertain, water services for customers will continue as normal, regardless of ownership.

The government had previously provided a £3 billion emergency loan to Thames earlier this year. Despite this, the company has been facing financial troubles since 2023.  While it is expected that Thames Water will resolve its financial instability, the government is prepared to trigger a Special Administration Regime (SAR) to ensure the continuity of essential water services if required.