Shares in the struggling property giant China Evergrande have fallen sharply after plans to offload a stake in one of its units for $2.6bn fell through, casting further doubt over whether it can avert the country’s biggest ever corporate failure.

On Thursday morning, China Evergrande Group, the parent company for the sprawling empire built by former steel industry executive Xu Jiayin, was down 12% in early trade before recovering slightly to -9.8%. Evergrande Property Services, one of its most profitable units, was off by 6.45%.

Evergrande announced on Wednesday that it had formally abandoned plans to sell a 50.1% slice of Evergrande Property Services, and said there was “no guarantee” it could meet its financial obligations in order to stay afloat.

The company, which is China’s second-biggest property developer with thousands of projects, has debts of $305bn.

But it is running out of cash thanks to a government crackdown on lending, and a slump in property sales and prices, sending shockwaves through the Chinese economy and global financial markets.

The company has been trying to offload assets since September to generate funds to repay creditors, starting with 1.6 million homebuyers who have bought as-yet unfinished properties off the plan, building contractors and suppliers, and then Chinese banks and bondholders.

Evergrande also owes billions to offshore bondholders and has already missed several key bond interest payments since September. The company will officially go into default if it fails to stump up $83.5m when a 30-day grace period for a repayment originally missed in September ends on Monday.

Creditors say Evergrande has not made contact about the repayments and it is widely expected that it will default.

The admission on Wednesday that Evergrande had failed to sell a 50.1% stake in its Evergrande Property Services arm to smaller rival Hopson Development Holdings for $2.6bn was a huge blow.

In a stock exchange filing late on Wednesday, Evergrande said it had reason to believe that Hopson had not met the “prerequisite to make a general offer” for its unit, without elaborating further.

Hopson said in an exchange filing that it had been prepared to complete the deal but had received a transaction termination notice from Evergrande on 13 October.

Shares in Evergrande, Evergrande Property Services and Hopson had all been suspended since 4 October pending the deal announcement.

In a separate exchange filing on Wednesday, Evergrande said it had made no material progress in selling other assets it has put on the block except for its sale of a stake worth $1.5bn in Chinese lender Shengjing Bank.

The setback for Evergrande comes after Chinese state-owned Yuexiu Property pulled out of a proposed $1.7bn deal to buy its Hong Kong headquarters last week.

Evergrande’s disclosures came after a number of top Chinese officials had sought to reassure homebuyers and markets that the current woes in the property sector would not be allowed to turn into a full-scale crisis.

Worries that a cash crunch at Evergrande, whose liabilities are equal to 2% of China’s gross domestic product, could cause economic contagion have seen swathes of other heavily indebted developers hit with credit rating downgrades, while some smaller ones have already defaulted.

In comments reported by state media Xinhua and echoing words from the country’s central bank late last week, vice-premier Liu He told a Beijing forum on Wednesday that the risks were controllable, and that reasonable capital demand from property firms was being met.

The chairman of China’s securities regulator, Yi Huiman, added at the same forum that authorities would properly handle the default risks and look to curb excessive debt more broadly.

“[We need] to improve the effectiveness of the constraint mechanism on debt financing, to avoid excessive financing through ‘high leverage’,” Yi said.

Chinese property developers have total outstanding debt of 33.5tn yuan ($5.24tn), according to Nomura, equivalent to roughly a third of the country’s gross domestic product.

Evergrande, which has epitomised China’s freewheeling era of borrowing and building, has been scrambling to raise funds to pay its many lenders and suppliers, amid expectations it is about to formally default on one of its international bonds.

In its Wednesday filing, Evergrande said it would continue to implement measures “to ease the liquidity issues” and would use best efforts to negotiate for the renewal or extension of its borrowings with its creditors.

“In view of the difficulties, challenges and uncertainties in improving its liquidity, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts,” it said.