The Qatar Investment Authority was last night on the brink of abandoning its £10.6 billion bid for J Sainsbury, The Times has learnt.

Sources in Qatar said it was “highly unlikely” that the QIA would press ahead with its bid, given the need for an additional £500 million to keep the offer alive.

An announcement about its decision to withdraw could be made as soon as today.

The move to walk away would bring to an end months of wrangling between the QIA, which invests on behalf of the Qatari Government, Sainsbury’s board and its pension trustees.

The board, led by Sir Philip Hampton, had effectively given the takeover a green light, despite opposition from the Sainsbury family, who own about 18 per cent of the shares.

The group, Britain’s third largest supermarket chain, would have been the second FTSE 100 company to be taken private after KKR, the US private equity group, bought Alliance Boots in an £11 billion acquisition earlier this year.

The QIA officially has until Thursday to launch a fully financed takeover offer for Sainsbury’s under a deadline set by the UK’s Takeover Panel.

Having wrestled with the Sainsbury’s board for months to get the books open for due diligence, the Qataris had been hopeful that they would conclude their acquisition before Christmas. But at the eleventh hour, it emerged that the QIA would need to stump up an extra £500 million to meet the demands of the pension trustees, provide enough working capital and leave a comfortable “buffer” in the event of a pricing war with Tesco.

It is understood that Paul Taylor, who runs the Qatar-backed Delta Two fund, which bid 600p a share for Sainsbury’s in July, has recommended that the sovereign fund proceed with its bid. But as the costs spiral, the QIA is understood to have become more reticent about launching the offer. Making matters worse, the price of debt has risen sharply in the wake of the credit crunch and the QIA has also suffered because its main commodity, natural gas, is priced in US dollars.

It is still possible that the Qataris could change their mind but sources last night said it was more likely that the QIA would walk away.

The Qatari group was already putting £4.5 billion of its own cash into the Sainsbury’s bid, so the move to increase that by a further 11 per cent will hit the QIA’s returns hard. While most private equity firms target returns of 15 to 20 per cent or more on their investments, it is understood the extra cash could push the QIA’s returns into single-digit territory.

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