(Bloomberg) -- Chinese authorities have told major lenders to China Evergrande Group not to expect interest payments due next week on bank loans, according to people familiar with the matter, taking the cash-strapped developer a step closer to one of the nation’s biggest debt restructurings. 

The Ministry of Housing and Urban-Rural Development convened a meeting with banks this week and informed them that Evergrande won’t be able to meet its debt obligations due on Sept. 20, said the people, asking not to be identified discussing a private matter. Evergrande is still discussing with banks the possibility of extending payments and rolling over some loans, the people said.

Evergrande’s inability to repay bank interest is the strongest sign yet of liquidity stress at the world’s most-indebted developer, which is sitting on more than $300 billion of liabilities. Chinese authorities are already laying the groundwork for a debt restructuring, assembling a group of accounting and legal experts to examine the finances of the group. With senior leaders in Beijing silent on whether they will allow Evergrande creditors to suffer major losses, bondholders have priced in slim odds of a rescue. 

Billionaire Hui Ka Yan’s complex web of obligations to banks, bondholders, suppliers and homeowners has become one of the biggest sources of financial risk in the world’s second-largest economy. Evergrande’s debt shrank to 571.8 billion yuan ($89 billion) as of June 30, the lowest in five years, according to Bloomberg calculations based on the results. But trade and other payables climbed 15% from six months earlier to a record 951.1 billion yuan.

It has received down payments on yet-to-be-completed properties from more than 1.5 million homebuyers.

The company said on Tuesday if it’s unable to repay debts on time or get creditors to agree to extensions or alternative arrangements, it may lead to cross-default.

Evergrande and China’s housing ministry didn’t immediately respond to requests for comment.

Uncertainty over Evergrande’s fate has fueled outsized swings in its bonds and shares, with the latter plunging 80% this year. Guangdong officials have turned down at least one bailout request from Hui, who owns a controlling stake in the developer, a person familiar with the matter said this week.

Bond investors are bracing for missed payments, with some Evergrande dollar notes tumbling to near record lows around 26 cents on the dollar. Moody’s Investors Service and Fitch Ratings had both downgraded Evergrande, citing an increasing likelihood of default.

Whether the selloff drags down the broader credit market may depend on the company’s ability to buy time with banks. A messy default on loans could stoke fears of widespread contagion, something Xi Jinping’s government has been keen to avoid even as it tightens financing restrictions on overstretched developers and discourages government bailouts.

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