Evergrande slips amid bank stake dilution fear

China Evergrande (3333) fell 2.50 percent to HK$10.94 after Caixin's WeNews reported that Liaoning Province local government asked the property developer to pare its stake in Shengjing Bank (2066) to dilute Evergrande's stake.

Authorities in the northeastern Liaoning held discussions with China Evergrande to inject state capital into Shengjing Bank to dilute Evergrande's stake, according to a report by WeNews . Evergrande is the biggest shareholder of the bank headquartered in Liaoning, which held a 36.4 percent stake.

No agreement has been reached yet, the report said, without specifying the reason.

China's Banking and Insurance Regulatory Commission said it would curb a key source of financing for developers to control risk.

The reported talks underscore regulatory concern about connections between the country's most indebted developer and its banking affiliate. The banking watchdog is examining transactions between the two companies, Caixin Media's WeNews reported in May. Regulators have also instructed Evergrande's major creditor banks to conduct a fresh round of stress test on their exposure, Bloomberg reported.

Evergrande faces another setback after Beijing tightened rules on banks' cash management products, a big source of liquidity for property developers, said Castor Pang, head of research at Core Pacific Yamaichi.

Shares of Evergrande fell, wiping out gains from buybacks last week. The conglomerate's flagship property unit closed 2.5 percent lower in Hong Kong yesterday, down 37 percent from its peak this year.

Evergrande's 8.75 percent dollar bond due 2025 fell 0.8 cents on the dollar to 69.6 cents as of 4.45pm in Hong Kong.

Chinese Estates (0127) chief executive Kimbee Chan Hoi-wan and Joseph Lau Luen-hung and C C Land (1224) chairman Cheung Chung-kiu are also the shareholders of Shengjing Bank.