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

A bitter feud between brothers and the collapse of India'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 (RCom), India's second-largest mobile company, gave an update yesterday on its talks with MTN, South Africa's largest. The update followed the failure of an initial 45-day period of exclusive talks to deliver a deal.

RCom said that the exclusivity period would 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,” it said. “In the meantime, shareholders are advised to exercise caution in their dealings in the companies' securities dealings until a further announcement is made.”

The two main options now on thevtable are understood to be the acquisition of a 34.9 per cent stake in MTN by RCom, or the purchase of 51 per cent in the South African company directly by Anil Ambani, the billionaire who controls RCom. 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 RCom's bankers.

The previous plan had been for Mr Ambani to swap his 66 per cent stake in RCom plus an amount of cash for a 35per cent stake in MTN - the most that he could acquire without triggering a mandatory takeover offer. The value of RCom has plummeted in recent weeks, however, falling to about $20 billion from $39 billion at the start of the year. That means that MTN shareholders will require a far greater cash payment than originally envisaged, bankers say.

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

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

Times Recommends

• Lloyds TSB wins vote for HBOS merger
• Bank of England discussed 2% rate cut
• Woolworths dives as it confirms takeover talks