Thames, which supplies around 16 million homes and businesses in London and elsewhere in southern England, is drowning in debt but has avoided a government rescue thanks to new loans and the promise of fresh investment.

Reacting to the KKR decision, Thames Water chairman Adrian Montague said in a statement:

"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."

There was no immediate response from KKR regarding its decision to pull out.

Britain's Environment Secretary Steve Reed insisted that "Thames... remains stable", adding in an interview with LBC radio Tuesday that the Labour government is "keeping a very close eye on the situation".

At the end of March, Thames Water chose KKR as preferred bidder to invest a reported pound4 billion ($5.4 billion) in the group -- a deal that, according to British media, would have handed the firm a majority stake.

It came alongside Thames securing a pound3-billion emergency loan from creditors, giving it a short-term lifeline as it looked to attract takeover bids.

But Tuesday's announcement has provided a fresh setback for Thames, which has debts of almost pound16 billion.

UK water regulator Ofwat last week said it had hit the supplier with a record fine of almost pound123 million over pollution and improper dividend payments.

Thames and other British water companies, privatised since 1989, have repeatedly come under fire for allowing the discharge of large quantities of sewage into rivers and the sea.

This has been blamed on under-investment in a sewage system that dates back largely to the Victorian era.

An interim report Tuesday from Britain's Independent Water Commission called for "wide-ranging and fundamental change" for the water sector in England and Wales.

This included "clearer direction from government" and "stronger regulation of water companies".

Britain's public spending watchdog has said that the nation's water sector will need to pour pound290 billion into its outdated infrastructure over the next 25 years to meet environmental and supply challenges.

In late 2024, Ofwat approved a 35-percent hike to the average household's Thames water bill over five years, hitting consumers hard.

Thames had sought an increase of 59 percent.