Investors are braced for a bidding war over MTN, Africa's largest mobile group, after it entered takeover talks with Bharti Airtel, its Indian peer.

It is understood that Bharti is willing to acquire a majority stake in MTN at a price that would value the South Africa-based firm at about $37 billion (£18.5 billion). Sources close to Bharti said that "two or three" deal combinations are being discussed. MTN confirmed that it is in talks with Bharti, which it described as "exploratory in nature". It advised shareholders "to exercise caution".

If successful, the acquisition would transform India's biggest mobile company into an international colossus with footholds in a host of emerging markets across Africa and the Middle East. It would also be the largest takeover of a foreign firm by an Indian group, eclipsing Tata's acquisition of Corus, the Anglo-Dutch steelmaker, for £6.7 billion.

Analysts expect news of the talks to flush out counter-bidders bent on thwarting the deal and ramping up their own exposures to fast-growing developing markets. MTN has about 68 million subscribers in 21 countries, compared with Bharti's 62 million in India. Suresh Mahadevan, of UBS, said: "MTN is likely to attract a host of other suitors which may push up the acquisition price."

Analysts suggested that Vodafone, which was recently linked to a possible bid for MTN, is pondering a move. Sources close to the London-listed group confirmed that emerging territories remain a priority to offset saturated Western markets, but that a bid for MTN was not imminent.

Reliance Communications, the Indian group controlled by the industrialist billionaire Anil Ambani, and China Mobile, China's largest mobile group in terms of subscriber numbers, are also viewed as potential buyers. Neither group had any immediate comment.

Sunil Bharti Mittal, the Bharti chairman, has expressed confidence in his group's ability to fund some sort of move for MTN amid the current credit crisis. However, shares in Bharti, which has a market value of about $40 billion, fell sharply in Bombay yesterday on concerns that the Indian company risks overstretching itself.

It was reported that Goldman Sachs and Standard Chartered have been lined up to underwrite about $6 billion each in financing and that equity would also be issued to fund the MTN deal. Bharti had just about $1.3 billion in cash and equivalents on its books at the end of March.

MTN is being advised by Merrill Lynch and Deutsche Bank.

Analysts yesterday suggested that Singapore Telecommunications, the Asian giant that holds a 30.5 per cent stake in Bharti, may join the deal to lend the Indian group some financial heft. "Given the size of any potential acquisition, we see a reasonable probability that SingTel gets directly involved with Bharti as a co-buyer as well," a note from Citigroup said.

A takeover would also have to negotiate political concerns in South Africa over the fate of one of the country's most highly-valued companies. MTN has close ties with the South Africa's ruling ANC party. The company's chairman is Cyril Ramaphosa, one of an influential set of former ANC politicians turned businessmen.

Singapore Telecommunications also confirmed the talks. It said: "Current discussions are still at an early stage, are exploratory in nature and may or may not lead to any transaction."

Last year, Vodafone failed in its efforts to expand its presence in Africa by securing absolute control of Vodacom, another leading South African mobile company, after talks broke down. The British group's attempt to acquire the 50 per cent of Vodacom it does not already own from Telkom, the former state monopoly, had rested on MTN buying Telkom's fixed line business.

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