Australian toll road operator Transurban Group rejected a $4.4 billion buyout approach from two Canadian pension funds on Thursday, but left the door open to a better offer, sending its shares up 20 percent.

The offer, pitched 20 percent above its last close, marks the latest swoop on an Australian infrastructure group by Canada's pension funds, taking advantage of beaten-down share prices as their targets struggle to refinance debt in the credit crunch.

The offer for the owner of roads in Sydney, Melbourne and Virginia in the United States came from the Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan Board, which together already own about 28 percent of the group.

Analysts' valuations of Transurban are just above A$5 a share and an offer much higher than A$5.25 would be surprising, said Will Seddon, investment analyst at White Funds Management, which owns shares in Transurban.

But they (the Canadian funds) might have a different view on valuations, he said.

Transurban said it remained willing to discuss proposals that would offer shareholders better value but called the existing offer too uncertain.

CPPIB and OTPP note Transurban's willingness to enter into constructive discussions on bona fide proposals and look forward to the opportunity to discuss the details of the proposal with Transurban, they said in a statement.

Transurban shares soared as high as A$5.32 after the funds revealed their offer price, and last traded up 19 percent at A$5.24. The stock had been down 19 percent so far this year, badly lagging the broader market's .AXJO 22 percent gain.

The funds proposed offering A$5.25 a share cash or continued equity participation in Transurban's assets via an unlisted group, or a combination of both, on condition at least 22 percent of the unlisted group is owned by other Transurban shareholders.

The condition is designed to give institutional investors an opportunity to stay in the assets through a privatized fund.

If Transurban's biggest single shareholder, Australian infrastructure investor CP2, were to agree to roll over its 15 percent stake and buy an additional 7 percent stake in the unlisted fund, then the condition would be met.

CP2 could not be immediately reached for comment.

Transurban disclosed the proposal after media speculation that the Ontario Teachers' fund planned to buy it out. The talk began last week after the fund sold down its stake in rival toll-road owner Macquarie Infrastructure Group.

Canada Pension Plan Investment Board bought Macquarie Communications Infrastructure Fund in June for $1.3 billion, but only after top shareholders successfully pressed for a sweetened offer at double its closing price before the first offer.

Taking Transurban private would make sense for the pension funds, as its value would no longer be subject to the sharp market swings they have seen this year, Seddon said.

They're a good suite of assets, relatively low risk. It wouldn't be a silly move, he said.

Transurban is being advised by Lazard, while the Canadian funds are being advised by Goldman Sachs and JP Morgan.

($1=1.095 Australian Dollar)

(Editing by Mark Bendeich and Valerie Lee)