Debt restructuring talks at Zabeel Investments, owned by the crown prince of Dubai, have ground to a halt with multiple loans in limbo and few assets available for sale, leaving banks facing steep haircuts, five people familiar with the matter said.

Zabeel, which has hospitality, property and private equity assets, owes approximately 6 billion dirhams ($1.6 billion) to mostly local banks. Despite nearly 18 months of talks, little progress has been made, four sources involved in the process told Reuters.

Despite its high-profile ownership, Zabeel -- which received two loans in 2009 from the Dubai Financial Support Fund (DFSF), including one to help meet a coupon payment -- has not been allocated more funds by the DFSF nor has it formally requested government help.

'The banks can talk about it all they want but it is not going to get them anywhere,' a Dubai-based banker with knowledge of the matter said, citing the limited legal options available to lenders. The banker spoke on condition of anonymity due to the sensitivity of the subject.

Three sources involved in the process said it was highly unlikely that legal action would be brought against Zabeel by lenders. Zabeel declined comment.

Zabeel's chief executive left the firm in August, while several board members, including the chairman, resigned in April.

Independent investment bank Moelis & Co was appointed to advise the firm on its financial position in mid-2010. Moelis declined to comment.

Zabeel, which once had stakes in Sony and planemaker EADS, has offloaded assets, including businesses in Las Vegas, to keep up interest payments, two financial industry sources said.

The asset sales, which included some pledged as collateral for loan facilities, have infuriated banks which have been powerless to act even as the firm subsequently halted interest payments, putting it technically in default, the financial industry sources said.

Banks have sent multiple notices demanding repayment, one of them added. But no legal action has been taken and it was not known whether such a step would succeed in a Dubai court.

Asset sales stopped in November, making it unclear how the company will finance itself and its future debt payments. It was not known what other sources of funding Zabeel might tap.

Zabeel, formed in 2006 and owned by Sheikh Hamdan bin Mohammed al-Maktoum, 29, owns the exclusive Zabeel Saray hotel on the Palm Jumeirah man-made island. The company has sold some of the high-end villas developed as part of the complex.

Like many Gulf investment vehicles, Zabeel was hit hard by the 2008 global financial crisis. Dubai Holding, the investment vehicle owned by the crown prince's father and Dubai ruler, Sheikh Mohammed bin Rashid al-Maktoum, has restructured a number of branches of the company.-Reuters