(Bloomberg) -- Concern is intensifying over state-backed China Vanke Co.’s ability to stave off default, defying efforts by authorities to shore up the cash-strapped developer’s finances. 

The company’s stocks and bonds tumbled this week, leading an industrywide selloff, after S&P Global Ratings became the third major ratings company to cut the developer to junk territory. 

The declines show the struggle officials face as they seek to restore investor confidence in an industry beset by plunging sales, falling property prices and soaring debt costs. Vanke, long considered among China’s most creditworthy property giants, is one of the few to avoid default.

“Vanke is an icon of China’s real estate industry,” said Yu Yingdong, general manager at Shenzhen Cowin Asset Management Ltd. “If a company like this can face such problems, it will only increase concern about the industry’s outlook.”

Vanke’s shares tumbled 13% in Shenzhen this week in their biggest loss since 2021, and closed at a decade-low. A dollar bond due 2027 traded below 40 cents on the dollar, headed for its lowest level on record, while a yuan bond due 2029 also slumped to a new low.

Vanke, founded in 1984 by Wang Shi, became synonymous with the growth of China’s property market, targeting the rapidly expanding middle class with quality projects. One of the first companies to list on China’s stock exchanges in 1991, the firm was for years the country’s largest property developer before being overtaken by more aggressive rivals Country Garden Holdings Co. and China Evergrande Group. 

Yet it’s becoming clear that Vanke isn’t immune to the crisis that’s pitched many Chinese private developers into default, including Evergrande. 

In February, Vanke shocked investors by reporting a 53% plunge in contracted sales, the biggest drop in at least six years. In March, the firm posted a 46% decline in full-year net profit, the largest slump since its 1991 listing, and failed to propose a dividend for the first time. 

Read more: China Vanke Profit Tumbles 46%, Vows to Cut Debt By $14 Billion

Then came the downgrades. Moody’s Ratings stripped the firm of its investment-grade credit rating, predicting credit metrics and liquidity would weaken because of falling home sales and funding uncertainties. Fitch Ratings soon followed suit. 

Last week, JPMorgan Chase & Co. cut its recommendation on the shares to underweight, saying the builder faces a “challenging” period of deleveraging and relying on the support of banks and state-owned enterprises.

“Recent events surrounding Vanke have mostly been negative,” said Ravi Wong, executive director of research at China Vered Securities Ltd., adding that investors are worried other state-backed developers will face similar problems.

Shenzhen’s government, which became Vanke’s top shareholder in 2017, has been vocal in its support for the developer. Back in November, the city’s State-owned Assets Supervision and Management Commission told financial firms it has confidence in Vanke and enough cash and tools to support the builder if needed.

Read more: China Gives Rare Show of Support to Stressed Developer Vanke 

China’s financial regulators and the local government last month helped arrange talks between creditor banks and Vanke on a possible debt swap. The move would help China’s second-largest real estate company avoid a public default while giving banks collateral to protect against any potential losses, Bloomberg reported.

Vanke has sufficient liquidity to address its debt maturities this year, S&P Global said on Wednesday. However, weakening property sales and margins will undermine its competitiveness, while the firm’s financial position may also weaken if the company fails to go through with planned asset sales, it said.

The company faces a maturity wall in 2025, when 36.2 billion yuan ($5 billion) of onshore and offshore bonds come due, according to S&P Global. As of end-2023, the company had accessible cash of 36.3 billion yuan, the rating agency estimated.

Vanke’s struggles come amid a renewed focus on China’s real estate sector. A gauge of Chinese property developers slid 6.2% this week to its lowest level since 2009. Defaulted Chinese developer Shimao Group Holdings Ltd. lost 30% after a state bank asked a Hong Kong court to liquidate the company.

--With assistance from Douglas Huang and Qingqi She.

©2024 Bloomberg L.P.