By Xie Yu

HONG KONG (Reuters) - China Vanke's shares and dollar bonds dropped on Thursday after S&P stripped its investment-grade status and the developer confirmed reports that an executive was being investigated, adding to woes for the embattled property sector.

Vanke's Shenzhen-listed stock closed down 1.8% at 7.4 yuan after dropping in early trade to 7.31 yuan - the lowest since May 2014. Its Hong-Kong listed stock was down 1.9% at HK$4.14, having earlier fallen 3.8% to a record low of HK$4.06.

Vanke's dollar bonds fell, with bidding on one tranche due December 2025 quoted around 66.3 in late trade, about 5 cents lower from Wednesday, Duration Finance data showed.

S&P slashed its rating of China's second-biggest developer by sales by three notches to BB+ from BBB+, one rung into "junk" territory, becoming the last of the major credit-rating firms to render Vanke's credit "non-investment grade".

It blamed Vanke's "weakening competitive position and surging leverage" and gave the new rating a "negative outlook".

Meanwhile, China media reported on Wednesday a general manager of Vanke's Jinan branch, in the eastern Chinese province of Shandong, named Xiao Jin had been taken away by police for investigation, fuelling concerns among investors.

In a statement to Reuters on Thursday, Vanke said: "Xiao Jin is cooperating with investigations by relevant department for his personal matters."

The firm was operating normally, the statement said. Xiao's role had been taken over by a separate executive and the statement referred to information disclosed by "relevant government department" for updates.

Vanke is likely able to make debt payments this year, S&P said. Still, it said sales were likely to continue to fall over the next 12 months amid a property market slump.

The developer is gasping for funding. It reported a 50.6% drop in 2023 core profit, and saw sales in the first two months of 2024 fall below its monthly break-even point.

It has been negotiating with banks and insurers for new loans and extended debt maturities, Reuters reported last month.

Vanke last month said it would boost cash flow by slashing debt and increasing income from businesses other than property development. It assured investors that Shenzhen authorities were coordinating with state firms to help with financing.

"We believe that weakening contracted sales and margins will undermine China Vanke's competitive position," S&P said, estimating contracted sales of 270 billion to 280 billion yuan ($37.3 billion to $38.1 billion) on a total basis in 2024-2026, down 25% to 28% on last year and 60% from a 2020 peak.