Colony Capital's deal to buy a controlling stake in Libya's European oil refining and marketing firm Tamoil is in trouble, a Libyan source said.

Colony said last year it agreed to buy the stake, in a deal that valued the refiner at 4 billion euros ($5.9 billion), marking the second major foray by private equity into the European oil refining business in recent years.

"I feel it will be very difficult," said the Libyan source, who declined to be identified by name. "We're almost at the end of the process and there are some substantial obstacles."    

The source did not specify why the deal was in trouble. Los Angeles-based Colony declined to comment.

Some other private equity firms, which traditionally borrow huge sums as part of takeover deals, are finding it increasingly difficult to close them because of the global credit crunch.

In June, Colony said in a statement that the sale also included Tamoil holding company Oilinvest and that the Libyan government would retain a 35 percent stake in the ongoing group.

Separately, the Libyan National Oil Corporation said in a statement this week that ownership of Oilinvest has been transferred to the Libyan Investment Authority (LIA), a sovereign wealth fund.

LIA officials were not immediately available for comment.

Tamoil owns more than 3,000 service stations in Europe, concentrated in Italy, and oil refineries in Italy, Switzerland, Spain and Germany, Colony said last year.

Colony, founded in 1991, focuses on real estate-related assets and operating companies.

Its deal with Libya followed another large private equity investment into the European refining sector.

In 2005, funds managed by Carlyle Group and Riverstone Holdings bought Dutch-based Petroplus and in 2006 they floated the independent refiner in Switzerland, making a substantial profit. - Reuters