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A Qatari-based investment firm has abandoned plans to make a £10.6 billion takeover bid for supermarket group J Sainsbury.

Delta Two said deteriorating conditions on the credit markets and concerns about future funding arrangements for Sainsbury's pension schemes were behind its decision to end its interest in the retailer.

News that the investment firm no longer intends to proceed with a 600p-a-share offer for Sainsbury comes after it emerged last month that Delta Two had agreed to secure additional equity of approximately £500 million in respect of its proposed acquisition of the grocer.

But in a statement today Sainsbury's once-keen suitor said a significant increase in the required funding and cost of capital needed to takeover the supermarket chain, since it first expressed interest in the group, had made the planned acquisition a less attractive investment option.

Delta Two's strategic investment adviser, Paul Taylor, said: "Delta Two has strict investment criteria and has approached this opportunity in a disciplined manner.

"Having given careful consideration to the additional funding requirement and its impact on prospective investment returns, Delta Two has regretfully concluded that a recommendation to proceed with the proposed transaction would not be in the best interests of stakeholders, and therefore such recommendation cannot be made," he added.

Sainsbury, which had previously said that a Delta Two takeover would result in significant investment and a further expansion of its business, stressed today that it remained upbeat about its future prospects.

The supermarket group's chief executive Justin King added that the company was making significant progress towards achieving its long-term recovery strategy – Making Sainsbury's Great Again.

"Interest in Sainsbury's has been borne out of the company's success to date in implementing its recovery strategy," said Mr King.

"Looking forward, the board of Sainsbury's believes that the company continues to have great potential under the leadership of its strong management team," he concluded.

The UK's takeover watchdog had given Delta Two until Thursday this week to table a formal bid for Sainsbury, which turned down a private equity bid led by CVC in the spring.