Beijing has stepped up oversight of Evergrande’s bank accounts to ensure funds are used to complete developments and not diverted to pay creditors.
China’s housing regulator told local subsidiaries across China last month to supervise funds for Evergrande’s property projects in escrow accounts, according to insiders.
Evergrande and the housing ministry did not respond to requests for comment.
Cash payments from these government-supervised accounts, such as paying suppliers, will be subject to state approval, insiders said. Bureaus in some cities had already started to implement the measures.
The moves are another sign that Evergrande homeowners will be prioritised by Beijing over the bondholders, banks and other creditors seek repayments on more than $300bn (£219bn) of debt.
The cash-strapped company has kept bond investors on edge by not making any announcement on whether it met a Thursday deadline to make an $83.5m interest payment on a bond maturing in March.
Three holders told Bloomberg they had not received payment.
The bank account restrictions underscore that policymakers are taking a more active role in the turmoil as missed payments by Evergrande on investment products spark protests across China.
Evergrande’s shares and bonds have collapsed in recent months on concern that the massive debt pile will lead to one of the largest restructurings in China.
Chinese developers sell residential properties before construction is completed, but are required to deposit funds from these sales in supervised bank accounts to stop them abandoning projects or diverting funds for other uses.
A Chinese city halted sales at two Evergrande projects in July, alleging the developer misappropriated funds by only depositing a portion of the proceeds from housing sales into the escrow accounts, according to a local government statement.
To ensure Evergrande did not divert these funds, the housing bureau in Nansha district created an escrow account under its own name this month to take funds from Evergrande homebuyers, it is understood.
A lack of funds has already led to a construction halt on some unfinished housing properties. In Guangzhou, buyers surrounded a local housing bureau earlier this month to demand Evergrande restart construction.
Maintaining construction and project delivery is key to resolving Evergrande’s liquidity crisis. In an effort to steer investors away from cash repayment on its wealth products, Evergrande is pushing them to accept deeply discounted properties, both to individuals and to companies.
However, many of the projects are not finished. Evergrande owes about $147bn to suppliers and had received down payments on yet-to-be-completed properties from about 1.6m homebuyers as of December.