OREANDA-NEWS. Fitch Ratings says China-based residential property developer Times Property Holdings Limited's (Times Property; B+/Stable) leverage is likely to remain high, following the increase seen in its 2015 financial results mainly due to the company's expansion of its product line aimed at upgraders. The results are in line with Fitch's expectations and support the company's rating.

Times Property has been acquiring higher-priced land parcels in its core markets from 2015 to expand the share of upgrader products in sales and solidify its foothold in Guangzhou and core Tier 2 cities such as Foshan and Zhuhai. Times Property's average land cost in Guangzhou, Foshan and Zhuhai in 2015 was CNY5,563 per square metre (sqm), but land cost increased to CNY13,598 per sqm for the two land parcels it acquired in January 2016 in Foshan and Zhuhai. As a result, leverage, as measured by net debt/adjusted inventory, has risen to around 48% at end-2015 from 40% at end-June 2015. Future acquisition of more expensive land parcels will continue to keep leverage at higher levels.

However, Fitch does not expect the leverage to exceed 50% and breach the level where we may consider taking negative rating action. The strong recovery in residential property prices and volume in Tier 1 cities, especially Beijing, Shanghai and Shenzhen, since 2H15 is likely to spill over to Guangzhou in the near term. If Times Property successfully launches its projects in a favourable market environment, the leverage may come down.

Times Property also has ample liquidity, with total cash balance rising to CNY8.7bn at end-2015 from CNY6.6bn at end-1H15. This will allow Times to fund its land acquisitions partly from existing cash, and contain the total debt increase to CNY5bn to keep its contracted sales-to-total debt ratio above 1.0x.