Malaysian budget airline AirAsia Bhd has agreed to raise 1 billion ringgit ($257 million) through a share sale to its founders as part of a strategy to cut debt, one day after Reuters reported the company planned to raise funds.

Asia's biggest budget airline proposed to issue 559 million new shares to Group chief executive Tony Fernandes and chairman Kamaruddin Meranun, which will boost their combined stake to 32.4 per cent from 18.9 per cent, it said in a statement on Friday.

The airline said the proposed issue indicates the continued commitment of Fernandes and Meranun as they make further large investments into the group to support its growth.

The move comes after AirAsia faced calls last year to shore up its financing in tough operating conditions. However, a decline in fuel costs and the recent strengthening of the Malaysian ringgit has however improved the airline's prospects.

CIMB Investment Bank and RHB Investment Bank are joint principal advisors for the proposed share issue.-Reuters