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CityFibre set to challenge BT’s Openreach division with expansion of UK fibre network

CityFibre's capital raising will be backed by Woodford Investment Management, founded by star fund manager Neil Woodford.
fibre cable
The UK remains Europe’s hotspot for technology investment despite Brexit

London-listed telecoms group CityFibre Infrastructure Holdings plc (LON:CITY) is set to rival BT Group plc’s Openreach division after announcing a £200mln fundraising to support the expansion of its full fibre network in the UK.

The company will more than double its issued share capital with its plans to raise at least £185mln through the placement of 336.4mln shares at a price of 55p per share. CityFibre will raise a further up to £15mln though a non-underwritten offer for sUBScription of up to 27.3mln shares at the same price.

Shares rose 11.57% to 67.50p in afternoon trading.

The capital raising will be backed by Woodford Investment Management, founded by star fund manager Neil Woodford. Woodford has agreed to sUBScribe for 65.5 million shares for a total £36mln.

Proceeds will be used to expand CityFibre's fibre metro networks from 42 UK towns and cities to at least 50 by 2020 and to fund the £29mln acquisition of Entanet International Limited, a provider of wholesale communications services. Funds will also be used to begin constructing fibre to the home for residential markets.

CitiFibre describes itself as a British builder of ‘gigabit cities’ and could challenge Openreach, which builds and maintains the UK's main telecoms infrastructure used by telephone and broadband providers. 

"We are building Gigabit Britain, driven by growing demand from internet service providers and their customers to switch to full-fibre infrastructure,” said chief executive Greg Mesh.

“Our announcement to enter the residential market is the first step in our vision to bring gigabit connectivity to millions of UK homes and small businesses.

"Today's capital raising also better positions CityFibre to undertake larger projects coming forward with the public sector as well as mobile operators in readiness for their small-cell roll-outs and 5G services.”

UK continues to outrank Europe for technology investment

The announcement comes as new research showed the UK remains Europe’s hotspot for technology investment despite last June’s Brexit vote.

Figures from London & Partners revealed a record level of investment in UK technology in the first six months of the year.

More than £1.3bn was injected into UK technology by venture capitals in the first half, the most for a six-month period in 10 years. London accounted for £1.1bn of the total. Since the UK voted to leave the European Union, £2.4bn of venture capital funding had been put into British technology companies.

“For a technology business looking to raise growth capital and scale, investment can come from anywhere in the world, but London is a great place to be located," said Herman Narula, chief executive of virtual reality start-up Improbable.

Improbable achieved the biggest deal of the last six months, raising more than US$500mln in May, backed by Japan’s Softbank.  

Investments half-year to June jumped 86% on the same period last year when traders exercised caution ahead of the Brexit vote.

Fast internet likely to keep financial frims in London after Brexit, says ECB

Meanwhile, the European Central Bank has released a study that argues access to ultra-fast internet cables in London is likely to make financial firms reluctant to move out of London even after Brexit.

Many financial institutions based in London, including HSBC, JP Morgan and UBS, have warned they would have to move some of their businesses to Europe as Brexit means they could lose access to the European Union’s single market.

However, the ECB said any withdrawal from London would likely be gradual as firms would find it difficult to give up Britain's fiber-optic cables, imperative for ultra-fast electronic trading

"The UK’s advantage as a hub for trading using fiber-optic cables, combined with institutional inertia, suggest that any relocation of trading after Brexit, if at all, would likely be gradual," the ECB said in its study.

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