SHANGHAI/HONG KONG - China Communications Construction plans to issue up to 3.5 billion A shares in Shanghai, with part of the proceeds used to fund a 1.94 billion yuan ($293.9 million) takeover of an infrastructure company, CRBC International.

Shares of both companies advanced on the news.

China Communications already holds a 61.4 percent stake in CRBC, a builder of roads and bridges, which is valued at 4.88 billion yuan.

CRBC's stock surged 10 percent on its first day of trading since Aug 13th, when its shares were suspended due to restructuring plans.

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"The merger will enlarge the net asset value of the Hong Kong-listed firm which is also seen as a positive for the group as a whole," said William Lo, analyst at Ample Capital.

Analysts said investors had been banking on China's infrastructure boom, with the government spending billions of dollars on the construction of expressways, expanding a network of roads and upgrading ports.

"China Communications' plan to issue A shares will also allow it to raise capital to fund its projects," said Conita Hung, head of equity research at Delta Asia Financial. "Our main concern is still costs, since their margins are generally very low and cement prices are rising quickly."

The agreed merger will be based on a cash-or-stocks offer. CRBC shareholders will be able to receive 12.31 yuan per share under the cash option or the equivalent of 14.53 yuan under the share alternative, China Communications said in a statement on Friday.

The cash offer represents a 2.93 percent premium to CRBC's last traded price on Aug 13, according to Reuters calculations.

Meanwhile China Communications said the stock offer represents a premium of about 23 percent over the average 20-day trading price of CRBC prior to its last day of trading.

Reuters