* Move will help airline reduce debt

* Founders to raise combined stake to nearly one-third (Adds details of fund raising, analyst quote)

By Anshuman Daga and Saeed Azhar

SINGAPORE, April 1 (Reuters) - AirAsia Bhd's founders tightened their grip on Asia's biggest budget airline with a deal to invest 1 billion ringgit ($257 million) in it, helping the company to shore up its finances and cut debt.

ADVERTISEMENT

The move by Asia's biggest budget airline to issue shares to Group CEO Tony Fernandes and Chairman Kamarudin Meranun is an attempt to draw a line under market concerns about the company's debt and accounting-related issues that hurt it last year.

The founders will raise their combined stake to 32.4 percent from 18.9 percent, the airline said in a statement on Friday, confirming a Reuters report a day earlier that the company was planning to raise funds.

Last year, AirAsia faced calls to shore up its financing amid tough operating conditions but a decline in fuel costs and the recent strengthening of the Malaysian ringgit has improved the airline's prospects.

The company's shares have rebounded about 42 percent this year after losing about half of its value last year.

Fernandes and Meranun, who founded Malaysia-based AirAsia in 2001 with two aircraft, have since turned it into Asia's largest budget airline with a fleet of over 160 Airbus jets serving Thailand, Indonesia, Philippines and India.

"AirAsia is more and more about these two individuals now," said Mohsin Aziz, a Kuala Lumpur-based analyst at Maybank. "The business will benefit with this cash injection."

The company said it will spend about one third of the funds to prepay and repay the group's debts, while also utilising the money to finance its aircrafts and engines.

ADVERTISEMENT

It said it finalised the share issue as it was the most appropriate means to raise funds compared to previous plans for a $1 billion multicurrency term note program or other means of funding such as a rights issue.

The airline said on Wednesday it was not considering going private at this stage, after local media reports said the founders would do so.

Late last year, AirAsia's founders sounded out investors to take the airline private in a management-led buyout and were also in talks with lessors, including cash-rich Chinese companies, to sell a stake in its leasing subsidiary, sources told Reuters.

It was not immediately clear if those options are now off the table.

CIMB Investment Bank and RHB Investment Bank are joint principal advisors for the proposed share issue. ($1 = 3.8900 ringgit) (Reporting by Anshuman Daga and Saeed Azhar; Editing by Christopher Cushing and Edwina Gibbs)