CityFibre’s owners have held talks with Virgin Media O2 (VMO2) over a potential rescue deal as the challenger broadband company scrambles to stave off a cash crunch.

Two major investors in CityFibre – Abu Dhabi sovereign wealth fund Mubadala and Goldman Sachs – have approached VMO2 in recent months to discuss options for the company, including a potential sale.

Discussions have also taken place with CityFibre’s lenders, which include NatWest, Société Générale and Credit Agricole.

One source said the approaches, which came through VMO2’s parent companies Liberty Global and Telefonica, were exploratory in nature and discussions are not thought to be ongoing.

However, the overtures underscore growing uncertainty over CityFibre’s future as a deadline to secure more cash looms.

Bosses last year warned the company would run out of funding in mid-2025 “in all scenarios” and issued a going concern warning. Analysts at Redburn Atlantic have branded the financial position “precarious”.

The talks also suggest CityFibre’s backers are skirting around chief executive Greg Mesch.

CityFibre, which is the largest challenger “alt-net” company vying to take on BT, has been locked in negotiations to secure more funding for at least nine months, but no agreement has yet been reached.

Lenders have appointed investment bank Lazard to advise them in the talks as they seek a further cash injection from existing shareholders.

But the process has been complicated by troubles at TalkTalk, another broadband company, which has fallen behind on payments to some suppliers.

Industry sources said the uncertainty was unlikely to help the refinancing process given an estimated 150,000 TalkTalk customers are on CityFibre’s network, representing almost 30pc of the alt-net’s total connections.

Speaking at a conference, Mr Mesch said: “We’ve taken longer and we’re working harder on a larger financing today that will accommodate M&A [mergers and acquisitions].

“It’s hard enough to do a financing, but we have to accommodate a financing that will allow us to consolidate not only networks but debt.”

A CityFibre spokesman said: “Any speculation about a potential sale is unfounded. CityFibre is in a strong position and we expect to announce details of our financing shortly, supporting our role in consolidating the sector and accelerating CityFibre’s next phase of growth.”

CityFibre’s shareholders added: “All shareholders remain committed to CityFibre’s long-term success and are actively engaged in supporting the company’s next phase of growth.”

It is not the first time a potential deal between CityFibre and VMO2 has been explored, with a takeover bid first discussed two years ago.

However, analysts have warned any such tie-up would likely require a significant write-down of CityFibre’s debts, which stand at roughly £4bn.

It comes as VMO2 faces uncertainty over the future of its new wholesale division, which is aimed at taking on BT’s Openreach.

But the plans have been put on ice while Telefonica, VMO2’s Spanish parent company, carries out a strategic review.

Virgin Media O2, Mubadala and Goldman Sachs declined to comment.