(Bloomberg) -- Moody’s Ratings stripped state-backed developer China Vanke Co. of investment-grade credit rating and warned of potential further cuts, predicting credit metrics and liquidity will weaken because of falling home sales and funding uncertainties.

The rating firm withdrew Vanke’s Baa3 issuer rating and assigned a Ba1 corporate family rating, it said in a statement Monday night. All of Vanke’s ratings are on review for downgrade.

“The rating actions reflect Moody’s expectation that China Vanke’s credit metrics, financial flexibility and liquidity buffer will weaken over the next 12-18 months because of its declining contracted sales and the rising uncertainties over its access to funding amid the prolonged property market downturn in China,” said Kaven Tsang, a Moody’s senior vice president.

The move is likely to further shake confidence in China’s property sector, as Vanke has been seen as a bellwether for Beijing’s support for major developers with strong ties to the state. A major test of that backing is occurring as Vanke faces resistance from the nation’s two largest banks on a new HK$4.5 billion ($575 million) offshore loan, Bloomberg News reported earlier Monday. 

The firm still carries non-junk grades at S&P Global Ratings and Fitch Ratings. If either also drop Vanke below investment grade, the builder will become what is known as a “fallen angel” and could prompt investors of high-grade bonds to sell their Vanke holdings.

Recent debt-repayment concerns pushed the developer’s shares and bonds to record lows. 

Vanke is also facing pressure from several major insurers that have become concerned over potential liquidity stress at the builder and are seeking to protect their privately issued debt. At least three Beijing-based insurers sent executives to Vanke’s headquarters in Shenzhen recently to discuss debt-repayment plans under the local government’s coordination, Bloomberg News reported last week.

--With assistance from Neha D'silva and Kevin Kingsbury.

(Adds background on offshore loan in the fourth paragraph.)

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