Thames Water survival hopes suffer fresh blow

The private equity firm that had been the frontrunner to lead a rescue of the UK's largest water provider - Thames Water - has pulled out.

Thames Water Utilities, which is staring down the prospect of a special administration process without fresh investment, said an alternative plan was now under discussion after KKR's exit from the process. It is understood that the company hopes a new transaction could be agreed by July.

KKR was handed preferred bidder status back in March as Thames, which serves 15 million customers but has a £22.8bn debt pile, moved to secure fresh equity. Money latest: Capital gains tax explained for second home sellers Thames said that KKR had indicated it was not in a position to proceed.

No reasons are understood to have been given. But its withdrawal was announced a week after Thames was handed a record fine by the industry regulator for failures related to its wastewater operations and dividend payouts.

The move was also divulged shortly after an interim report for the government raised the prospect of a super regulator being created to bolster and streamline oversight of the water industry. Thames said it was now progressing talks with senior creditors for an alternative to stabilise its finances, and was also planning discussions with the regulator Ofwat on that plan.

The watchdog is understood to be studying a 400-page document which includes proposals for new equity and debt facilities. It is hoped that a transaction could be completed by next month.

Read more money news from Sky News:Rachel Reeves threatens to sue Roman AbramovichThe rise of the prenup - and why so many are getting them The company's chairman, Sir Adrian Montague, said: "Whilst today's news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal. "The company will therefore progress discussions on the senior creditors' plan with Ofwat and other stakeholders.

"The board would like to thank the senior creditors for their continuing support." A government spokesperson responded: "The company remains stable and the government is closely monitoring the situation. It would be inappropriate to comment further on the financial matters of a private company." Cash-strapped Thames secured a £3bn lifeline to tide it over back in March as it moved to secure fresh investment to guarantee its long-term survival.

It had kept open the prospect of an alternative solution, given there was no certainty over a KKR deal being agreed. A failure to find new investment again raises the prospect of Thames falling into a special administration process.

That would effectively see the company come under temporary government ownership to maintain vital services until a new owner, or ownership solution, is found. A spokesperson for the industry lobby group Water UK responded: "Everyone agrees that the water industry is not working.

We hope this report will be a starting point for the fundamental reforms the sector needs. We need a less complicated system which allows investment to get quickly to where it needs to go.

"In the meantime, companies are focused on investing a record £104bn over the next 5-years to secure our water supplies, end sewage entering our rivers and seas and support economic growth." Chair of the environment committee of MPs, Alistair Carmichael, said: "In our evidence session with Thames Water bosses in May we raised serious concerns that Thames had only pursued one bidder at an early stage for its takeover bid, against the wishes of Ofwat, and highlighted the risks this could pose if KKR chose not to proceed. Unfortunately, our concerns have been realised, putting Thames in a perilous position.

"The Government has shied away from acknowledging the potential impact of this scenario on the public finances and must ensure that any takeover is in the public interest and does not line the pockets of financial institutions further to the detriment of customers and operational performance.".