OREANDA-NEWS. Fitch Ratings says today that the default of Kaisa Group Holdings Ltd. (Kaisa) on coupon payments of its offshore bond will not materially change Chinese homebuilders' reliance on offshore debt financing.

Chinese regulations restrict homebuilders' ability to borrow onshore to acquire land. In addition, retained profits have been insufficient to fund the blistering growth of property sales over the last decade. As a result, most homebuilders have been funding their growth primarily via offshore debt and equity markets.

The number of homebuilders accessing the offshore debt market soared over the last five years. As the importance of this market grew, many of these companies have improved their corporate governance, transparency and operational management to woo international bond investors. The 33 Fitch-rated Chinese property companies have generally responded on a timely basis to information and meeting requests by the agency, and have been cooperative in providing the requested information. Many have stepped up investor outreach efforts and regular publication of operational data.

Kaisa's default - partly driven by its inability obtain the necessary permits to sell apartments in certain projects - is not the start of a trend. Although further similar defaults cannot be ruled out due to the high number of borrowers of varying credit quality in the market, there is little evidence of systematic weakening in Chinese homebuilders' transparency or governance.

The main reason that Chinese homebuilders have reduced offshore bond issuance in 2015 compared with a year earlier is the cyclical slowdown in property sales following the 2013 peak. Most homebuilders are using this lull to slow their land acquisitions, and in some cases, repair their stretched balance sheets. Consequently, funding needs have fallen sharply, with much of the proceeds from issuance in the year to date used to refinance maturing debt and/or to extend existing maturities. Fitch expects this trend to continue for the rest of the year, as the Chinese housing market continues to absorb excess inventory.