Zain rejected all bids for the sale of its stake in its Saudi operations on Sunday, a key regulatory requirement for the Etisalat deal to go through.

Etisalat had offered to buy a 46-percent stake in Zain last September from major shareholder Kharafi Group.

“There’s now a low probability the Zain-Etisalat deal will go through, which will leave Kharafi back at square one and looking for another buyer,” said a telecoms analyst.

Etisalat said on Sunday it regretted Zain’s dismissal of the bids but was comfortable with the ongoing due diligence process and still saw it done by the end of February.

“We are comfortable with the progress of the due diligence which aimed to be completed by end of February 2011,” spokesman Ahmed bin Ali said in a statement.

His remarks came as the Kharafi Group rejected any further extensions to Etisalat on Sunday.

“I think that’s a very clear statement from the (share) owner. The management has nothing to do with it,” Zain chief executive Nabil bin Salama said.

Zain must sell its 25-percent stake in Zain Saudi, valued at $750 million, to avoid overlap with Etisalat, which also operates in the kingdom through affiliate Mobily.

Zain received three bids for the stake from Prince Alwaleed bin Talal’s Kingdom Holding Co., Batelco and an investment consortium led by Al-Riyadh Group.

A source said the board deemed the Batelco bid as too low, while the consortium led by Al Riyadh, was not considered because it was unclear who was behind the group.

Batelco, meanwhile, pointed out that its offer to Zain had included a “significant” cash injection for the debt-laden business.

“We believe the Batelco consortium presented a very fair and reasonable offer to Zain Group,” Batelco Chief Executive Peter Kaliaropoulos said in a statement.

“Our offer also involved a significant amount of new cash to be injected into Zain KSA as working capital to accelerate its growth in a highly competitive market.”

Also on Sunday, Zain’s chief executive said the Kuwait-based operator planned to cut 40 percent of its staff and reorganize its senior management structure.

Nabil bin Salama said the reductions would only apply to the parent group and not to its subsidiaries.

“My strategy is to restructure and decrease the number in the group as much as possible in order to receive the preferred benefits,” he said.

On Saturday, Zain said its chief operating officer, its chief strategy and business officer as well as an adviser to the chief executive would all leave the firm at the end of March due to personal commitments.

“The management planned this policy and agreed on it a while back,” he said, adding that the restructuring will include positions in the upper management.