China stepped in to buy a stake in a struggling regional bank from China Evergrande Group as it seeks to limit contagion in the financial sector from the embattled property developer.
Evergrande agreed to sell a 20% stake in Shengjing Bank Co. to the local Shenyang government for 10 billion yuan ($1.55 billion), with the bank demanding that all proceeds go to settle debts with the lender, according to a statement to the Hong Kong stock exchange. In that case, the sale would do little to help Evergrande pay its massive debts to bond holders and homebuyers.
The sale illustrates how authorities are taking steps to minimize fallout to the banking system from the worsening liquidity crisis at Evergrande as they try to avoid a bailout. At least 10 lenders told investors earlier this month that they have sufficient collateral for loans to the developer and that risks are under control. Hong Kong’s central bank asked lenders to report their exposure to Evergrande Group, according to people familiar with the matter.