* Potential buyers include MTN and Batelco
* Zain's stake in Zain Saudi worth about $700 million
(Adds valuation)
By Eman Goma and Victoria Howley
KUWAIT/LONDON, Dec 2 (Reuters) - Kuwaiti telecoms carrier Zain has appointed UBS to sell its 25 percent stake in Zain Saudi, sources familiar with the situation said on Thursday.
Zain selling its part in the business is a regulatory condition for Abu Dhabi group Etisalat's $12 billion bid for a controlling stake in Zain.
Etisalat and Zain both have units in Saudi Arabia and compete for market share there. The stake is worth about $700 million based on Zain Saudi's current share price of 7.6 riyals ($2.03), according to Thomson Reuters data.
Bahrain Telecommunications, or Batelco, and South African group MTN were in talks to buy Zain's stake, the sources said. It was unclear whether other parties were also involved.
Major Zain shareholder Kharafi group is the main player in a plan to sell a 46 percent stake in Zain to Etisalat.
But Sheikh Khalifa Ali al-Khalifa al-Sabah, a member of Kuwait's ruling family and a Zain board member, told Reuters this week that another shareholder, Al Fawares Holding, had filed a lawsuit to stop Etisalat's due diligence.
Batelco is one of the smaller operators in the Gulf Arab region, trying to find a niche besides heavyweights Saudi Telecom, Zain and Etisalat.
Operators in the region are wrestling with lower margins at home due to new competition in increasingly liberalised markets and the financing costs for acquisitions and new licences abroad.
India's Bharti Airtel bought Zain's African operations for $9 billion earlier this year.
UBS, Zain and MTN declined to comment. Batelco could not be reached for comment. (Editing by Will Waterman)