Nov. 1 (Bloomberg) -- China Railway Group Ltd., the nation's largest construction company, may raise as much as $4 billion in Shanghai and Hong Kong share sales by next month, said two people familiar with the plan.

The Beijing-based company, which built the world's highest railroad, may sell a combined 40 percent stake in the offerings, said the people, who declined to be identified because the information isn't yet public.

China will invest 3.8 trillion yuan ($510 billion) improving transport infrastructure in the five years ending 2010 to meet demand in an economy that grew 11.5 percent in the third quarter, according to a November 2006 report from UBS AG. China Communications Construction Co., the world's largest port builder, went public in Hong Kong in December.

``China's railway industry is entering a period of unprecedented expansion,'' said Wang Ren, a Hong Kong-based analyst of CCB International Securities.

China is encouraging construction companies to raise capital through the stock market to help ease a funding bottleneck that stunted industry growth in previous years, and after an expanded equity market proved capable of accommodating share sales by large state-owned enterprises, Wang said.

Chinese companies have raised $52 billion selling shares domestically this year, more than in the previous five years combined, according to data compiled by Bloomberg. Equity offerings in Japan amounted to $19 billion this year.

Shanghai Sale First

State-owned China Railway was restructured from China Railway Engineering Group Co. in September.

It plans to sell no more than 4.68 billion new yuan- denominated Class A shares, or a 26.8 percent stake, in Shanghai, according to a preliminary document posted on the China Securities Regulatory Commission Web site today. The agency's listing committee is meeting Nov. 5 to review the company's Shanghai sale, the CSRC said in a separate statement.

China Railway also plans to sell no more than 3.33 billion so-called H shares, a 16 percent stake, in Hong Kong. The Hong Kong stock offering could be expanded to 3.82 billion shares to meet excess demand and help stabilize the share price, the preliminary document said.

After the expanded Hong Kong share sale, the A share offering will represent a nearly 22 percent stake. The Hong Kong share sale will be about an 18 percent stake, according to Bloomberg calculations based on information in the document.

China Railway plans to start trading in Shanghai in early December, and to be listed on the Hong Kong stock exchange by early to mid-December, the people said.

Its Hong Kong share sale will not be priced lower than the Shanghai offering, the document said.

Railway to Lhasa

Hong Kong had been the main fundraising venue for large Chinese companies for the past decade. Chinese firms and owners have fetched more than $120 billion in Hong Kong IPOs since the beginning of 1999, according to Bloomberg data.

Of late, the Chinese government has urged companies to sell shares at home, where the stock index has nearly quadrupled in the past year, encouraging people to open 53 million new accounts this year to trade stocks and mutual funds.

China Railway was involved in building the 1,956-kilometer (1,216-mile) rail link between Tibet and Qinghai province, part of the world's highest and longest plateau railway, as well as Shanghai's high-speed ``Maglev'' line. It also constructs roads, tunnels and bridges, according to its Web site.

Sale Arrangers

BOC International Holdings Ltd. and UBS AG are arranging its Shanghai share sale. JPMorgan Chase & Co. is helping handle the Hong Kong offering.

Beijing-based officials of China Railway were not immediately available for comment. Spokespeople of the investment banks declined to comment.

Shares of China Communications Construction have risen more than fivefold since its HK$18.5 billion ($2.4 billion) Hong Kong initial public offering last December.

Tight state control over project bidding may have suppressed profit margins at construction companies, CCB International's Wang said, adding the grip may ease over time.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net.

Last Updated: November 1, 2007 08:03 EDT