Equity-averse developers in a bind

Bond issuance by mainland developers has been in hiatus since last month's default of Zhejiang Xingrun Real Estate on 3.5 billion yuan (HK$4.4 billion) of domestic bank loans and other debt.

There was little debt issued by the property sector last month - and no deals so far this month. Asia's high-yield investors, always nervous about defaults because their portfolios are so heavily weighted with mainland property bonds, are taking time out.

"Every time the market window seems to be open there is a lot of supply [of mainland real estate bonds]. Investors are becoming wary," said Henry Wong, a banker who covers the property sector for UBS.

Meanwhile, interest rates are rising and property markets are softening, and mainland regulators have cut off property firms' access to trust loans, previously an important source of capital for the sector.

It would appear to be time for developers to raise equity capital. This would cut their refinancing risk, give them cash for expansion, diversify their investor base and rebalance their capital structures, reassuring a skittish market. But, as sensible as all that sounds, analysts and bankers say the heads of mainland property firms will resist selling shares until their last breath.