(Bloomberg) -- China’s property debt crisis is showing new signs of trouble after entering its fourth year, with one of the country’s major state-backed developers placed under unprecedented scrutiny by investors.

Some of China’s largest insurers are sounding an alarm over the debt risks of China Vanke Co., according to people familiar with the matter, as shares and bonds of the major developer hit record lows on repayment concerns. 

At least two Beijing-based insurers that farm out annuity investments told their external portfolio managers late last week to closely monitor Vanke’s credit risks, said the people, asking not to be identified discussing a private matter. One life insurer also told its pension managers to curb exposure, the people added. 

Meanwhile, Vanke, China’s second-biggest developer by sales, has begun a new round of negotiations with several state insurers in recent days to extend maturities of some private borrowings, the people said. No agreement has been reached so far.

In response to queries from Bloomberg, Vanke said Tuesday it has prepared funds to repay its 5.35% dollar bond due on March 11 and that the payment is being arranged orderly.

Vanke’s shares were down as much as 4.1% in Hong Kong, after dropping to a record low Monday. Its 3.975% dollar note slumped 1.7 cents to 46 cents on the dollar, set for the lowest since October, Bloomberg-compiled prices show. 

The warnings about Vanke’s risks are particularly worrisome and threaten to elevate the sector’s debt woes to the next level because the company is seen as a bellwether for Beijing’s support for major developers with strong ties to the state. The company is also one of China’s few remaining and surviving investment-grade builders, following a record wave of defaults that engulfed mostly private-sector builders including former industry giants Country Garden Holdings Co. and China Evergrande Group. 

The growing concerns about Vanke also come at an inconvenient time for authorities as the nation kicked off its seven-day-long annual parliamentary sessions on Tuesday, with key policy topics from the housing crisis to local government debt in focus. Authorities pledged Tuesday to refine real estate policies to provide stronger support for the ailing sector, including treating developers equally regardless of their ownership.

“It is no surprise that Vanke is in trouble today,” said Li Kai, chief investment officer of Beijing Shengao Fund Management Co. “Domestic real estate sales have been so poor that it is difficult for companies to hang on, and the market has not seen strong visible support from local governments.” 

The builder, whose biggest shareholder is Shenzhen Metro Group Co., has faced concerns about its debt obligations since last year. China’s home sales slump accelerated this year, even after regulators stepped up efforts to rescue the beleaguered sector.

Vanke had about 1.7 trillion yuan ($236 billion) of assets and 1.3 trillion yuan of total liabilities as of mid-2023, according to its interim report. The builder said Friday it plans to raise about 1.16 billion yuan ($161 million) in an infrastructure REIT that will list in Shenzhen.

It’s not the first time state-linked Chinese developers are in trouble. China South City Holdings Ltd. and Sino-Ocean Group Holding Ltd., two such firms, are also on the list of defaulters. However, their sizes and impact are nowhere near Vanke’s. 

“If Vanke does have a redemption risk, I think it will be comparable to the impact on the market of Country Garden’s default, and will directly hit other private real estate developers that are still struggling to support themselves,” said Beijing Shengao’s Li.

Vanke’s Hong Kong-listed shares may remain weak until there is a sales recovery or stronger support from the Shenzhen government, according to JPMorgan Chase & Co. analysts, who forecast a 20%-30% yearly drop in the developer’s full-year earnings.

--With assistance from Lorretta Chen and John Cheng.

(Updates shares and bond prices, and company statement on bond repayment)

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