Colonial's deal still seen "difficult": source

By Elena Moya

LONDON (Reuters) - Beleaguered Spanish real estate firm Colonial (COL.MC: Quote, Profile, Research) continued talks on Monday with Investment Corporation of Dubai (ICD) over a takeover offer that still seems "difficult" as Wednesday's deadline to reach an agreement looms, a source familiar with the situation said.

The parties are still discussing the terms of ICD's offer, which is conditional on agreement with creditor banks and with the arrangers of a 7.2 billion-euro ($11.36 billion) syndicated loan, led by Goldman Sachs (GS.N: Quote, Profile, Research), Eurohypo EHYG.DE, Calyon and Royal Bank of Scotland (RBS.L: Quote, Profile, Research)

"Many parties need to reach an agreement, it's difficult," the source told Reuters.

Colonial shares fell 1 percent to 0.98 euros at 1546GMT.

The company is being advised by Lazard, while Morgan Stanley is advising ICD. The two banks declined to comment.

Over the past few days, the bank syndicate has rejected an offer from ICD to sweeten the terms of its loan. The banks could reject the deal, forcing the company to start selling assets afterwards as a way of repaying some of the debt.

The Middle East sovereign wealth fund offered to acquire the rental business of Colonial, as it was not interested in the development and building units, which have been hit by the crisis in the Spanish real estate sector.

Income from Colonial's rental offices in Madrid, Barcelona and Paris still accounts for most of the company's earnings.

(Editing by David Cowell)