How will Beijing handle an Evergrande default? A troubled airline…

The Hong Kong Stock Exchange (HKEX) suspended trading of shares in two units of the highly leveraged property developer Evergrande on Monday, a day after the group—which has teetered on the edge of collapse for weeks—reportedly missed repayment of a $260 million note.

HKEX halted trading in Evergrande’s core property development unit as well as the group’s property management subsidiary. The bourse operator said Evergrande had requested the share suspension in advance of “an announcement containing inside information about a major transaction” in the case of Evergrande’s main listed unit, and noted a “possible general offer for the shares of the Company” in the notice suspending trade for the property services group. On Monday, China’s Global Times reported that Hopson Development Holdings would purchase 51% of Evergrande’s property services unit for $5 billion. Shares in Hong Kong–listed Hopson were suspended Monday, too, pending an announcement. Evergrande did not immediately return a request for comment on a possible Hopson deal.

The trading suspension also hit a day after Evergrande defaulted on a $260 million note, according to Bloomberg, which marked the group’s first full-blown default. Evergrande missed interest payments on two large bond issuances in the last two weeks of September, but enjoys a 30-day grace period on those slipped bills.

Evergrande hasn’t confirmed the missed payment but, if correct, the note due Sunday would have a five-day grace period that is enacted only if administrative issues prevent the debtor from paying on time.

“The note payment is more significant [than the coupon repayment] because it’s a return of the principal, not just the interest,” says Jeffrey Halley, a senior market analyst for APAC at OANDA. “If you don’t pay the principal, then it’s a default.”

Third parties are picking the scraps off Evergrande already. In addition to the reported sale of its property management unit to Hopson, Evergrande last week announced it had off-loaded a $1.5 billion stake in a Chinese bank and would funnel the proceeds to paying down its debts.

Evergrande could use money raised through the sale of its noncore assets to cover the $669 million in coupon payments the company has due this year. But settling interest payments won’t mitigate Evergrande’s overly leveraged position, which prevents the group from receiving new loans from banks.

“This liquidity will help short term, but ultimately at this stage, a default or not is more a tactical decision before a likely restructuring,” says Michel Lowy, the CEO of asset management group SC Lowy, suggesting whether Evergrande alleviates some debts now rather than later is moot. The company is already too leveraged to avoid collapse. It sits atop a $300 billion debt pile and is unable to secure new credit lines due to restrictions the government introduced on lending to leveraged property developers in August last year.

Even with the looming threat of a default, Beijing has kept quiet on how it plans to manage the company’s imminent collapse. Besides its debt to bondholders, Evergrande owes hundreds of thousands of individual investors as-yet-unbuilt apartments.

Analysts expect the government will attempt to insulate China’s broader economy from the fallout of Evergrande’s massive default and secure compensation for individual homeowners. That could mean compelling banks and other property developers to take control of Evergrande units—much like how the government has handled the restructuring of debt-strapped HNA this year.

The airline group declared bankruptcy in January this year, after racking up $170 billion in debt through a credit-led spending spree that began in 2016. A team of government regulators consolidated the company’s hundreds of subsidiaries into one group. That single group is now due to be split into four separate entities, with brand-new owners and corporate structures.

When tackling HNA’s outstanding debt, the government ensured small lenders—owed roughly $15,000 or less each—were paid in full, while larger creditors were repaid in shares in the new HNA business and cash from other companies, Reuters reports. Reuters also says HNA received a $6 billion “strategic investment” from unspecified sources to help pay down its remaining debt.

As with HNA, analysts say the government will seek to ensure Evergrande’s small-time investors—buyers who have paid for unfinished flats and staff forced to invest in the group’s wealth management schemes—are made whole, leaving offshore bondholders with fewer guarantees of repayment.