Bahrain Telecommunications and Kingdom Holding have pulled out of a deal to buy a quarter of Saudi telco firm Zain Saudi for $950 million, saying proposed terms could not be met.

Batelco and Kingdom, the investment vehicle of Saudi billionaire Prince Alwaleed bin Talal, agreed in March to buy a stake in the indebted affiliate of Kuwaiti group Zain .

Delays in due diligence had already put the fate of the proposed acquisition in doubt.

"The consortium concluded that the terms and conditions as set out in its non binding offer could not be met to its satisfaction," Batelco and Kingdom said on Thursday.

On Monday, Batelco chief executive Peter Kaliaropoulos had told Reuters he expected due diligence would be completed by the end of September.

Analysts have said a major impediment for the deal was Zain Saudi debt above $5.5 billion according to its first-quarter results. That included a $2.6 billion Islamic facility that can be rolled over until August 2012 and reported to be part-guaranteed by Zain, and $651 million owed to Zain.

Settling these liabilities to enable Zain to exit its unit were thought to be a major sticking point.

"Zain Group, acting in the best interest of its shareholders, looks forward to assisting Zain Saudi in the development of the latter's mobile telecommunications business in the kingdom in the future," Zain said in a statement.

Zain shares were down 3.1 per cent at 0610 GMT.

In September 2010, UAE operator Etisalat made a $12 billion takeover offer for Zain. That deal was called off in March. .

With Etisalat already active in Saudi Arabia through affiliate Mobily , Zain needed to sell its Zain Saudi stake for this takeover to proceed and agreed the Batelco-Kingdom deal even after Etisalat had withdrawn its bid.

"You are going to see many deals put on hold. In most cases the current valuation are not distressed enough to offer bargains just yet," said Hashem Montasser, managing partner at Frontlane Capital, a Dubai-based asset management firm.

"I am not surprised about Zain. It is a difficult environment for M&A," he said.

Zain Saudi debts have left it struggling to compete.

Its share of the kingdom's mobile subscribers fell to 16 per cent in 2010 from 18 per cent a year earlier, leaving it a distant third to Mobily and Saudi Telecom Co.