QATARI-backed Delta Two is in talks with several banks over arranging emergency funding to keep its £10.5 billion bid for J Sainsbury alive.

Last week Paul Taylor, head of Delta Two, approached a number of bankers to discuss the option of raising £500m through a high-yield PIC or “payment in kind” bond. The option could be used to save the deal in case the Qataris refuse to provide the extra cash needed to complete the deal.

On Thursday, Delta Two announced it would have to raise an extra £500m equity financing. This week the board of the Qatar Investment Authority (QIA) will meet to debate whether to provide the cash. Sources close to the deal said there was no guarantee the funding could be secured.

“Delta Two made the announcement purely because there’s a real chance it might not get the funding from the QIA and the deal might collapse,” said one insider.

Last month, the Qatari government was asked to underwrite the £6 billion lending provision needed to finance the deal and inject £500m equity to satisfy the pension fund requirements.

Delta Two finished due diligence on Sainsbury last Wednesday. At the same time, the banks finalised their lending agreements which were higher than originally thought because of changes in the lending environment after the credit crunch.

In addition, it became clear that the Office of Fair Trading (OFT) would insist that Sainsbury’s retained a large amount of cash in the business.

The insider said: “It is expected that Tesco will launch a price war to test the new Sainsbury.

“The new owners must satisfy the OFT that there is enough cash to cushion this sort of blow and others.”

Ensuring that the pension fund is appropriately funded has also absorbed more cash.

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