British companies will issue billions of pounds of bonds that convert into shares over in the next six months, fuelling what investment bankers say is a new boom market for raising capital.

Companies such as J Sainsbury, WPP, the media group, and Anglo-American, the miner, have issued convertible bonds in the past two months. Bankers expect many others to follow suit and say that issuing convertibles is cheaper and faster than launching a rights issue or borrowing.

Antoine de Guillenchmidt, head of UK equity capital markets at Morgan Stanley, said: “If you are a FTSE 100 company that has the necessary documentation in place, the convertible bond market is accessible and transactions can be launched rapidly. The market for convertibles has historically been the last to close and is currently benefiting from the resilience of the credit markets.”

Thomson Reuters says that British companies have raised just under $4 billion (£2.4 billion) since April from issuing convertible bonds. Convertibles, available only to City investors and often bought by hedge funds, pay an interest rate, or coupon, until they convert into shares at a set price and date.

Mr de Guillenchmidt forecast that the amount of convertibles issued could reach $10 billion by the end of the year. He said companies that had completed emergency rights issues and repaired their balance sheets were best placed to issue convertible bonds. This week, Sainsbury’s raised £190 million by issuing convertibles, at the same time placing shares worth a further £242 million.

Investors who buy the bonds receive an interest rate of 4.25 per cent until the bonds convert into equity at a price of £4.185 in 2014. Sainsbury’s shares were about 316p last week, meaning that the share price has to improve by about 35 per cent over five years for the holding to be profitable.

“In January and through the first quarter, we saw that the secondary market [for trading] was recovering. We advised clients to prepare for the primary market to reopen in the second quarter, which happened early in April,” Mr de Guillenchmidt said.

“For a company, it may be cheaper to issue convertibles than it is to issue straight debt, subject to share price performance over time. Investors receive an annual coupon [interest rate] and the ability to benefit from an improvement in the issuer’s share price.”

Mr de Guillenchmidt said that confidence in convertibles hit rock bottom last September, when Lehman Brothers, the Wall Street bank, collapsed. However, he said that the market was booming again, particulary because investors were returning to both the bond and equity markets in anticipation that the recession is nearing an end.

He said that companies across Europe were issuing convertible bonds again. ArcelorMittal, the steelmaker, Cap-Gemini, the consultancy, and Publicis, the advertising agency, have raised capital in this way since March, according to Morgan Stanley,which has worked on 11 of the 20 convertible deals completed in Europe so far this year.

The average conversion premium, or share price improvement needed to make the bonds profitable, has been 32 per cent in 2008 and 2009. Mr de Guillenschmidt said that this year 11 companies, including Sainsbury’s and WPP, had exceeded that target.

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