India's Bharti Airtel and South Africa's MTN hope to finalize by mid-September a deal that could lead to a full merger, with the Indian firm adding another adviser and getting closer to lining up loans, three sources said.

The telecoms firms have extended exclusive talks until the end of September, and the sources said a proposal could be ready to be placed before shareholders and regulators before then.

Unresolved differences over valuation and management rights are still a risk, even as a broader consensus on the need for a sweetener from Bharti and other structures has emerged.

In a sign that the talks, announced in late May and extended twice, may be gathering momentum, Bharti has shortlisted eight banks for a five-year offshore loan of up to $4 billion, Reuters Basis Point reported.

Standard Chartered, ANZ, Barclays Capital, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Citigroup, DBS, and State Bank of India are the lenders on the short list, Basis Point said.

Bharti has also hired Barclays recently as a co-adviser on the deal, alongside Standard Chartered, banking sources said. Deutsche Bank and Bank of America Merrill Lynch are advising MTN on the deal.

In another possible sign of progress, Bharti Chairman Sunil Mittal and MTN Group Chief Executive Phuthuma Nhleko met the Indian finance minister and corporate affairs minister earlier this week, officials said.

Things are falling into place. Broad consensus is emerging on valuation and management sharing. Now we need to clear up the finer points, one source with direct knowledge of the deal said.

A Bharti spokesman said the firm would not comment on anything beyond the statements it has issued.

SMALL SWEETENER

Under the deal, MTN and its shareholders would take a 36 percent economic interest in Bharti by paying cash and stock, and the Indian firm would pay cash and issue global depositary receipts (GDRs) to end up with 49 percent of MTN.

A sweetener is most likely but it is not going to be big, one source said.

Earlier, a source familiar with the negotiations had told Reuters that Bharti might increase its offer by between 5 and 10 percent.

The room to drastically alter the terms of the deal was weakening, the source said, as the South African rand has appreciated against the dollar since the transactions was announced, making the deal costlier for Bharti.

Among other issues, the two firms are finalizing the board structure and also addressing the concerns of MTN's shareholders who are averse to receiving Bharti's GDRs because of South African limits on total foreign stock holdings for investors.

One option is SingTel steps in and buys the GDRs, providing those who do not want it an exit option, said Sanjay Chawla, sector analyst at Anand Rathi Securities.

Singapore Telecommunications owns more than 30 percent of Bharti, through direct and indirect holdings, which would be diluted if the deal goes through.

If you ask me, 'are we there?' I'd say almost but not quite. But the confidence in getting there has risen manifold, one source said.

(Additional reporting by Rajkumar Ray in New Delhi)

(Editing by John Mair and Rupert Winchester)

South Africa India Investment Bharti Airtel