(Bloomberg) – China has stepped in to buy a stake in a troubled regional bank of the China Evergrande group as it seeks to limit contagion in the ailing real estate developer’s financial sector.

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Evergrande agreed to sell a 20% stake in Shengjing Bank Co. to the local government of Shenyang for 10 billion yuan ($ 1.55 billion), with the bank demanding that all profits go to settle debts to the lender, according to a statement to the Hong Kong Stock Exchange. In this case, the sale would do little to help Evergrande pay off its massive debts to bondholders and homebuyers.

The sale illustrates how authorities are taking action to minimize the fallout for the banking system from the deepening liquidity crisis in Evergrande as they attempt to avoid a bailout. At least 10 banks told investors earlier this month that they had sufficient collateral for developer loans and that the risks were under control. Hong Kong’s central bank has asked lenders to report their exposure to the Evergrande group, according to people familiar with the matter.

“Maintaining the stability of the social and financial sector remains the overriding political goal of the Chinese government,” said Nicholas Zhu, senior analyst at Moody’s Investors Service. “Authorities, including local governments, will take political action and assume coordinating roles to ensure that the Evergrande resolution does not cause social or financial instability.”

As a sign of investor nervousness towards the banking sector, Dongguan Rural Commercial Bank Co. plunged in its early days in Hong Kong. The lender listed its exposure to the real estate sector as a risk factor in a preliminary prospectus, saying the sector accounted for 8.8% of its commercial loans as of March 31.

Evergrande will sell about 1.75 billion domestic unlisted shares of Shengjing Bank to Shenyang Shengjing Finance Investment Group Co. at a price of 5.7 yuan each, according to the statement. The developer’s stake in the lender will drop to 14.57% after the last transaction, which requires the relevant approvals. Evergrande raised about 1 billion yuan in a previous sale of Shengjing Bank stake in August.

The deal highlights growing pressure on billionaire Hui Ka Yan to split up and sell assets to pay off a mountain of debt. Evergrande’s initial 36% stake in Shengjing Bank was among its most valuable financial assets, worth around $ 2.8 billion. This position has become less attractive as regulators have stepped up oversight of transactions such as preferential loans and bond purchases between banks and their major shareholders.

Evergrande shares climbed 10% in Hong Kong on Wednesday morning, reducing their decline to 80% year-to-date. Its dollar bond due 2022 has been listed lower to 25.3 cents to the dollar while its 2025 note is unchanged at 23.5 cents, according to prices compiled by Bloomberg. Shengjing Bank was not traded after closing at HK $ 7 on Tuesday.

The bank recorded a drop of more than 60% in its half-year result due to a drop in net interest income and an increase in asset write-downs.

“The company’s liquidity problem has negatively affected Shengjing Bank significantly,” Evergrande said in the statement, adding that the introduction of the buyer would help stabilize the bank’s operations.

A report released in May by Caixin Media’s WeNews said the China Banking and Insurance Regulatory Commission was examining more than 100 billion yuan in transactions between the two. Evergrande increased its stake in Shengjing Bank in 2019, following a request by authorities to recapitalize the lender, Bloomberg reported last year.

Evergrnade faces increasing pressure to repay debts. The company has already fallen behind in payments to banks, suppliers and owners of onshore investment products. He made no public statement on an $ 83.5 million coupon that was due on September 23, and at least several holders said they had not received the funds.

On Wednesday, Fitch Ratings downgraded the developer’s credit rating to C versus CC, saying Evergrande likely missed the interest payment on the senior unsecured notes and entered within a 30-day grace period.

The developer is due to pay a $ 45.2 million coupon Wednesday for a dollar bond that matures in 2024, according to data compiled by Bloomberg.

“With so many coupon payments coming towards the end of the year, selling non-core assets is the most efficient way for Evergrande to raise funds,” said Steven Leung, executive director of UOB Kay Hian. The central government is “watching very closely” the proceeds of asset sales, he said.

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