Reliance Communications and MTN will extend their exclusive talks for a further two weeks after apparently dumping plans for a reverse takeover of the South African mobile giant by its Indian peer.

A bitter feud between two of India's richest men and the collapse of the country's stock markets had threatened to derail the negotiations, which, if successful, would lead to the creation of a new powerhouse in the world mobile market.

Reliance Communications, India's second-largest mobile company, gave an update on its talks with MTN, South Africa's largest, today. The statement follows the failure of an initial 45-day period of exclusive talks to deliver a deal.

Reliance Communications said the exclusivity period will be extended until July 21.

"It is to be noted that there is no certainty either on completion, or the timing of the said proposal. In the meantime, shareholders are advised to exercise caution in their dealings in the companies' securities until a further announcement is made," it added.

The two main options on the table are understood to be the acquisition of a 34.9 per cent stake in MTN by RCom, or the purchase of a 51 per cent in the South African company by Anil Ambani, the billionaire who controls Reliance Communications.

If Mr Ambani were to take a majority stake, he would have to secure the agreement of MTN shareholders for a "whitewash proceeding" that would exempt him from having to make a further open offer.

Mr Ambani would also have to secure funding. It is understood that his advisers have held talks with private equity groups including Kohlberg Kravis Roberts, Blackstone, Apex and Carlyle. Sovereign wealth funds, including the Dubai Investment Corporation, have also met Reliance Communications' bankers.

A combination of the two companies would create a group with forecast earnings of $10 billion (£5 billion) for 2009 and footholds in fast-growing mobile markets in Africa, the Middle East and India.

In recent days, however, doubts had mounted that a deal would be announced.

Last month, Mukesh Ambani, India's richest man, claimed that he has the right of first refusal to buy Reliance Communications, which is controlled by his estranged brother Anil. The move, which was vehemently denied by Reliance Communications, was widely construed to be an attempt to stall the MTN merger talks.

At the end of last week, Mukesh Ambani wrote to his brother to request a meeting that could prove a prelude to court action next month. Mukesh Ambani's representatives said that his company, Reliance Industries, had invoked the provisions of a dispute-resolution process "prior to commencement of formal arbitration" in the courts.

This week the bad blood between the two brothers has only looked to have worsened, after refusals by each to meet on the others' terms.

The previous plan had been for Mr Ambani to swap his 66 per cent stake in Reliance Communications with some cash for a 35 per cent stake in MTN – the most he could acquire without triggering a mandatory takeover offer.

However, the value of Reliance Communications has plummeted in recent weeks, falling from $39 billion at the start of the year to about $20 million. That means MTN shareholders will require a greater cash payment than originally envisaged, bankers say.

The row between the two Ambani brothers marks a fresh low in the combative relationship between the sub-continent's wealthiest siblings. Their father, Dhirubhai Ambani, who built the Reliance empire, died without leaving a will in 2002. At that time, Mukesh took over the running of the business, a situation that frustrated Anil. By 2004, the pair were squabbling publicly. Following an intervention by their mother, Anil left with nearly 30 per cent of the business.

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