China Evergrande Group (SEHK:3333) will exit its investment in Shengjing Bank Co under a deal brokered by the local government, according to people familiar with the matter, as Chinese authorities take another step to ring-fence the financial system from the embattled property developer. A state-owned entity will buy Evergrande's remaining 14.57% stake in Shengjing Bank for about CNY 7.3 billion (MYR 4.72 billion) after a local court put the stake on the block, said the people, asking not to be identified discussing a private matter. The proceeds are earmarked to repay debt that Evergrande owes the bank, one of the people said, meaning the sale will not help bondholders or homebuyers of stalled projects.

Turmoil at Evergrande — and a number of its key competitors — has roiled markets in China over the past year as firms and regulators struggle to cushion the embattled property sector amid sliding home prices and tumbling sales. Government-backed entities have stepped in to acquire some of Evergrande's assets, although Beijing has shown little sign of offering a full bailout for the developer. The stake is currently being auctioned online for CNY 7.3 billion, with the process set to close at 10am on Wednesday.

A state-owned entity is the only bidder to have registered so far, one of the people said. A total of 1.28 billion of Shengjing Bank shares are being offered, according to the auction site run by Alibaba Group Holding Ltd.