The surge in popularity comes as companies must manage refinancing needs at a time borrowing costs are picking up from their ultra-cheap levels of recent years as U.S. interest rates rise against a backdrop of growing market risks.

Bankers and investors believe the new demand for the product coupled with the rising rate environment are driving issuance at a pace that could top 2007's record levels.

Technology companies, often unrated but in search of growth capital, are also tapping convertible bonds.

"There is a strong correlation between interest rates and issuance volume; so in an environment where interest rates are going up, the convertible bond product becomes an attractive funding alternative," said Aaron Oh, head of structured equity origination, Asia Pacific at Credit Suisse.

Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving the bondholder the option of converting the debt into company shares at a set price in future. The equity link gives investors fixed returns and the prospect of profiting from a rise in the issuer's share price.

"Bearing in mind the trajectory of rates and higher spreads, we expect the issuance for convertible bonds to increase this year," said Artur Piasecki, portfolio manager of BlackRock’s Asian credit team.

Convertible bond sales in Asia hit their highest in 2018 since the global financial crisis, with $35.5 billion being raised, roughly 18 percent higher than the five-year average, according to Refinitiv data.

Asian companies must repay $495.4 billion in dollar-denominated bonds over the next two years, the highest since early 2000, Refinitiv data show. The $245.4 billion coming due this year is 80 percent higher than the past five-year average.

Asian executives have been leery of convertibles for, in their view, it meant selling shares cheaply and diluting their holdings in the process. Their appeal lessened further when central banks started flooding markets with liquidity since the global financial crisis, driving interest rates even lower.

Now, however, corporate borrowers are facing rising interest rates while recent stock market volatility has piqued investor interest in the equity options embedded in the bonds.

In the eyes of some, the return of the equity-linked product is a sign that long-term market trends are on the turn.

"Demand for our product tends to increase when things are about to change, so basically we're at an inflection point in markets," said Nathan McMurtray, head of equity linked products for CLSA.

Convertible bonds last boomed around 2007, when equity prices hit new peaks and interest rates were high before the crisis hit.

TECH BORROWERS EMERGE

Cash-hungry Chinese property developers dominated the issuance of convertibles last year, with just two - Country Garden and Evergrande - selling more than $5 billion between them.

Tech firms with more volatile stock prices have also begun turning to convertible bonds, in part because selling straight debt is harder and more expensive.

China's Netflix-like video platform iQiyi, which raised $2.42 billion in its New York IPO last year, raised a further $750 million in November by issuing a five-year unrated convertible bond at a coupon of 3.75 percent, with a conversion premium of 40 percent.

"With the new listed companies, as they look to raise growth capital going forward, they will look at convertible bonds as well as equity to decide what they want to do. I wouldn't be surprised if we see a more diverse sector representation beyond just the developers," said David Binnion, co-head of equity capital markets for Asia ex-Japan at Goldman Sachs.

Last week, Chinese PC maker Lenovo Group also achieved significant savings on its borrowing costs by issuing $675 million in five-year convertible bonds at a coupon of 3.375 percent, compared with its outstanding five-year bonds yielding about 6 percent.

"A lot of clients look at it as cheaper debt financing," said Ashu Khullar, head of Asia Pacific capital markets origination for Citigroup.

Lenovo's stock price is also up 29 percent since the beginning of 2018, meaning the 40 percent conversion premium embedded in the bond - the difference between the price of the convertible against the market value of the common stock - will ensure that any dilution takes place at a high level.

Dilution risk - from issuing more stock thereby diluting the percentage ownership of existing shareholders - remains one of the main drawbacks of convertible bonds, but a high conversion premium can make it more palatable for existing shareholders.

Anvita Arora, head of Asia Pacific equity linked origination at Bank of America Merrill Lynch, said: "The fact that you can put an enormous premium on top of your existing share price, if any equity is created, it's only created at a very high stock level...so people feel like dilution then becomes acceptable."

(Editing by Jennifer Hughes and Jacqueline Wong)

By Julia Fioretti