Pakistan Privatisation Minister Abdul Hafeez Shaikh was leading the visiting delegation, but sources said he had not yet joined the talks.
"It is a working level meeting still. But there is a positive atmosphere," sources said. They later said talks would continue into the night.
Hafeez, who declined any comment on Tuesday, is making his second trip to the UAE since the October 28 payment deadline expired, leaving his government facing a huge hole in its $18.4 billion budget for the year to June 2006.
Etisalat bid about $1 billion more than the 1.33 billion PTCL shares were worth at the time, reinforcing the perception that Gulf firms were willing to pay anything in their hunt for opportunities to invest their soaring oil revenues.
FINANCING HITCH But then the Dubai-based Khaleej Times reported that Etisalat, which is also vying for telecom stakes in Tunisia and Turkey, was having problems raising money after a consortium partner opted out on the belief that the company was overpaying.
Etisalat declined comment. Officials on both sides of the politically sensitive deal have been tight-lipped.
"The regulator should have asked Etisalat to clarify the issue. This information has implications not only for Etisalat's stock but also the broader market," said Wadah Al-Taha, head of research at National Bank of Abu Dhabi.
Shares in Etisalat, the largest company on the Abu Dhabi Stock Exchange, closed 0.51 percent lower on Tuesday while in Karachi, PTCL ended 2.24 percent higher.
When Etisalat sought permission to raise money in Pakistan, the government turned down the request. A senior Pakistani Privatisation Commission official has since said that the government no longer had strong objections.
Analysts say raising a substantial sum in Pakistan would be difficult, given its tight liquidity and high interest rates.
"They could probably raise around $100 to $200 million only," said Arshad Arif, head of research of KASB Group in Lahore.