The water industry regulator has admitted investors in crisis-hit Thames Water have become “more concerned about the turnaround of the company”, as it seeks £1bn to help shore up its immediate financial future.

Ofwat chief executive David Black told a Lords committee that while talks were continuing, new shareholders may have to be sought if the investment needed fell short of the “substantial” sums required.

But he added that Thames currently had £4bn of funds to draw on.

The regulator’s oversight of the sector came under scrutiny less than a week after Sky News revealed that Ofwat and government officials had started to draw up contingency plans for the company’s possible collapse.

Just a day earlier, it had been announced that Thames chief executive Sarah Bentley had resigned with immediate effect.

Thames Water, which supplies a quarter of the UK’s population, is rushing to raise new funds from investors amid concerns it will struggle to service its £14bn debt mountain.

While customers have been reassured that supplies and their bills are not at risk, confidence in the firm’s management has been shaken by years of bad press relating to shareholder dividends, executive pay, leaks and sewage contamination.

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Earlier on Tuesday, Thames was fined £3.3m over a 2017 sewage discharge that was blamed for the deaths of 1,400 fish.

Commenting on the state of the company’s battered finances, Mr Black admitted higher costs from things like energy had taken an additional toll on Thames and the wider industry but admitted the problems were most acute at Thames.

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He said that while the firm had managed to raise £500m, it was still looking for an additional £1bn and attempting to secure this through a revised turnaround plan, in consultation with its investors.

He added that it may be necessary for Thames to seek out new shareholders.

Mr Black confirmed it was the regulator’s view that more than £1bn would be needed though he would not be drawn on a figure.

“We need to see their revised business plan but we think it’s substantial sums of money”, he told the industry and regulators committee.

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