Ministers are preparing to place Thames Water into a special administration regime (SAR), effectively nationalising the debt-laden utility before seeking a new buyer, according to The Times.
Environment secretary Steve Reed is understood to be actively preparing for the move, which would wipe out much of Thames’s £16.8 billion debt.
Hong Kong-based CKI, which already owns Northumbrian Water and UK Power Networks, is seen as a leading contender and has indicated it could take control within weeks.
The plan is politically sensitive given concerns over Chinese involvement in critical UK infrastructure.
SAR would ensure water and sewerage services continued, but could leave taxpayers facing billions in bailout costs. Two senior government sources told The Times a bailout is now the most likely outcome.
Creditors warn that wiping out debt in favour of a Chinese-linked buyer would send a “chilling message” to investors. Thames has been in crisis since last year, beset by pollution breaches and high leakage rates.