OREANDA-NEWS. March 31, 2015. Fitch Ratings says that China-based Poly Real Estate Group Company Limited's (Poly) higher leverage as at end-2014 has no impact its Long-Term Foreign-Currency Issuer Default Rating (IDR) and foreign-currency senior unsecured rating of 'BBB+'. The Outlook is Stable on the IDR.

The Outlook on Poly's standalone 'BBB' rating was revised to Negative on 26 September 2014 because of rising leverage. Poly's ratings benefit from one-notch uplift for support from its parent China Poly Group Corporation (China Poly) thanks to their strong linkages. This is in accordance with Fitch's "Parent and Subsidiary Rating Linkage" criteria. The Negative Outlook on the standalone rating does not affect Poly's IDR and Outlook as the uplift for parental support will increase to two notches if the standalone rating is downgraded to 'BBB-'.

Slower sales, hefty land premium, and slower cash collection pushed Poly's net debt/adjusted inventory to 53% end-2014 from 43% at end-2013. The ratio exceeded the 45% level at which Fitch would consider negative rating action on the standalone rating. Poly recorded contracted sales of CNY136.7bn in 2014, short of its target of CNY150bn. Fitch expects mild sales growth in 2015 as recovery in the residential market has yet to gain momentum. Fitch expects Poly's cash collection to improve after the government eased mortgage rules and the company to adopt a more prudent land replenishment strategy, which may help the company to deleverage in 2015.

Poly's EBITDA margin remained resilient at 22% in 2014 (2013: 21%) in a year during which many of its peers suffered profit margin erosion. However, Fitch expects Poly's EBITDA margin to face downward pressure given increasing competition for land in Tier 1 and Tier 2 cities that will raise land costs. This may be partly mitigated by the company's higher-margin urban redevelopment projects.

For a more detailed analysis of the rating drivers and sensitivities for Poly, please refer to the rating action commentary "Fitch Affirms Poly Real Estate's 'BBB+' Ratings; Outlook Stable', dated 26 September 2014 and available at www.fitchratings.com.