UAE operator Etisalat’s move to buy a large stake in Zain looks to be on shaky ground after the Kharafi group, a major player in the transaction, said it was no longer committed to the deal.

Kharafi is a direct shareholder in Zain to the tune of 12 per cent but owns an additional eight per cent through a Kuwaiti vehicle known as National Investments Co. (NIC). With 20 per cent of Zain in todal, Kharafi was seen as the main deal broker.

Yet Etisalat, which is looking to pick up 46 per cent of Zain for an estimated price of between $10-$12bn, has let the due diligence period expire, causing NIC to release a statement announcing the end of its commitment to sell the stake.

The development is another blow to the deal, which suffered a setback recently when Zain rejected three offers for its Saudi Arabian operation. In order for the Etisalat deal to go ahead, Zain is required to offload its Saudi unit, as Etisalat also has a presence in the country via Mobily.

Yet there were reports in the local press on Wednesday that new Saudi investors had emerged and were holding discussions with Zain over the Saudi unit. No details have been made available but the mega-deal may yet go ahead.

Informa believes the move makes a lot of sense in terms of advancing Etisalat’s own expansion plans, as several of Zain’s units are very attractive assets. And since the disposal of its African operations, are now almost entirely based in the Middle East, which is also Etisalat’s home region. Furthermore, Zain’s footprint is largely complementary to that of Etisalat, with only one important overlap in Saudi Arabia.

The case for consolidation among the big Gulf operators has been building for some time, said Matthew Reed, senior analyst at Informa. But with each player having similar objectives of building themselves into major players in the Middle East and beyond, there wasn’t room for all to succeed. “Zain was the most ambitious of its peers but it was also the first to blink, with its grand expansion plans unravelling over the past year or so, leading to the sale of the Zain Africa operations to Bharti Airtel,” Reed said.