(Bloomberg) -- Country Garden Holdings Co., which defaulted in October for the first time on dollar bonds, faces a test next week to avoid the same fate on a local note — an outcome that a regulator signaled it’s trying to avoid.

The Shenzhen Stock Exchange met with some holders of the 800 million yuan ($112 million) security, which is listed on the bourse and has a so-called put option Dec. 13 that allows investors to demand repayment before its maturity next year, according to people familiar with the matter.

Some of the holders have already registered their put option on the notes, which were issued with credit-default swaps that insure against nonpayment but that also expire Dec. 13, the people said, asking not to be identified as the matter is private. But the exchange told the holders in an in-person meeting Thursday at the bourse’s office that if the holders agree not to exercise their option, then the CDS contracts would be extended until the maturity of the security next December.

The meeting is the latest sign of Country Garden’s struggle to meet its debt obligations amid cratering property prices. China’s biggest private developer hasn’t officially defaulted on any of its yuan bonds, but doing so would signify an escalation of its distress. 

The option offered at the meeting is also likely to raise questions about how fully investors can cash in on their investment of Chinese developers’ CDS products, which commonly accompanied newly issued bonds as package, a trend that largely started in the last year.

The bond was issued by Country Garden Real Estate Group Co. a year ago under China’s push to beef up financing support for the real estate sector. 

Two state-owned firms issued and sold CDS to investors simultaneously when the bond was issued, the people said. Holders of CDS contracts can only seek payouts if the bonds they are insuring are deemed to be in default.

Country Garden’s debt struggles have epitomized the property crisis engulfing the country’s economy. The company was deemed to be in default on a dollar bond in October. 

Country Garden has managed to obtain creditors support to extend some of its onshore notes by three years in September. 

The bourse didn’t immediately reply to a request for comment. Country Garden didn’t immediately offer a comment when reached by Bloomberg.

--With assistance from Emma Dong and April Ma.

(Updates with chart, table)

©2023 Bloomberg L.P.