OREANDA-NEWS. Fitch Ratings says that Chinese homebuilder Evergrande Real Estate Group Limited's (Evergrande) leverage at end-2014 remained high, and continues to be a key constraint on its Long-Term Foreign-Currency Issuer Default Rating (IDR) and foreign-currency senior unsecured rating of 'BB-'.

The Negative Outlook placed on the IDR since September 2014 reflects the very narrow gap between its credit metrics and the levels that may trigger negative rating action and the uncertainties with Evergrande's financial discipline.

Evergrande's net debt/adjusted leverage remained high at 53% at end-2014 (end-June 2014: 57%), and above levels at its peers. The company has relied on debt to fund expansion in its property development business, while investing in new businesses during the year.

The company has announced it plans to deleverage in 2015, largely through increasing sales efficiency. With the company still in growth mode for its property development and property investment segments, and the ongoing capex for its new businesses, though, it remains to be seen if company can deleverage quickly.

Evergrande's contracted sales rose 24% to CNY131bn in 2014, exceeding its CNY110bn target, despite a slower housing market. The company is targeting CNY150bn in contracted sales in 2015, growth of 15% from its already large base. Its EBITDA margin fell to around 15% from 19% in 2013, which was in line with the industry trend. Fitch believes Evergrande's economies of scale provided a buffer for the decline compared to smaller scale peers.

The company's cash balance of CNY59.5bn end-2014 will not fully cover its short-term debt of CNY79.7bn and outstanding land premium of CNY24.5bn. Fitch expects the company to bridge the deficit by relying on onshore financing, aside from tapping its CNY51bn of undrawn bank facilities.