UPDATE 1-India Kingfisher shares rally on plan to cut debt

* Board OKs raising up $1 bln; plans $250 mln GDR issue

* Fund raising to take care of cash flow crunch-analyst

* Shares rise as much as 3.5 pct (Adds details)

By Ami Shah and Aniruddha Basu

MUMBAI, Sept 1 (Reuters) - Shares in Kingfisher Airlines (KING.BO) rose as much as 3.5 percent on Wednesday after the second-largest Indian private-sector carrier's board approved raising up to $1 billion to pare high debt.

Kingfisher, which operates around 380 flights a day, has mandated SBI Capital, a unit of State Bank of India (SBI.BO), with the task of financial restructuring as it looks to stem losses and turn the airline profitable.

Indian carriers, which were battered by shrinking traffic and high fuel costs in the past two years, are now looking forward to an upswing in business, helped by a rebounding domestic economy, analysts said. [ID:nSGE6720K5]

According to aviation consulting firm Centre for Asia Pacific Aviation (CAPA), the carriers incurred a total loss of about $1.75 billion in the past year ended March, but could end the current financial year with a profit of up to $300 million, except state-owned Air India [AI.UL].

CAPA said in August Kingfisher's biggest obstacle to a turnaround was its debt of $1.5 billion, with interest payments accounting for about a fifth of costs.

Kingfisher will immediately seek to raise up to $250 million through an issue of global depositary receipts (GDRs), the company said in a statement late on Tuesday.

This follows an enabling resolution approved by the board to issue fresh capital, including through preference shares, equity shares and GDRs. [ID:nSGE67U0IK]

"The only positive thing is the fund raising will take care of Kingfisher's cash flow crunch for the time being," said Ambareesh Baliga, vice-president of Karvy Stock Broking.

The carrier with a fleet of 66 aircraft that flies domestic and international routes plans to raise 5 billion rupees ($106.6 million) through a domestic share offering in the next 3-4 months, the company said.

United Breweries Holdings Ltd (UBHL.BO), which controls the airline, will convert loans of around 6.5 billion rupees to Kingfisher into preference shares, it said.

The airline had reported a net loss of 1.87 billion rupees for the June quarter, narrower than 2.43 billion rupees a year earlier.

Larger rival Jet Airways (JET.BO) reported a net profit of 35.2 million rupees for April-June, while budget airline SpiceJet's (SPJT.BO) profits more than doubled to 552 million rupees.

By 11:02 a.m. (0532 GMT), Kingfisher shares were up 1.8 percent at 60.40 rupees, while the main index .BSESN was up 0.7 percent. The stock rose as much as 3.5 percent earlier.

The shares are, however, down more than 4 percent this year, underperforming the benchmark index that has gained 3.6 percent. ($1 = 46.9 rupees) (Writing by Devidutta Tripathy in New Delhi; Editing by Ranjit Gangadharan)