SINGAPORE/KUALA LUMPUR (Reuters) - AirAsia Group Bhd AIRA.KL shares plunged on Wednesday after federal police in India filed a case against the airline accusing it of corruption - a probe that threatens to delay its India unit's IPO plans and international expansion.

Tony Fernandes, CEO of AirAsia, holds a media event in Bangkok, Thailand May 15, 2018. REUTERS/Soe Zeya Tun

The case, also filed against Chief Executive Tony Fernandes and unit AirAsia India, is a fresh blow to the airline’s embattled leader, who has been under fire for supporting Malaysia’s former prime minister and is being investigated over the cancellation of flights during the general election period.

“The (India) investigations could be long-drawn and will de-rail AirAsia India’s plans to launch international flights from next year and defer its IPO targets too,” said Corrine Png, CEO of Singapore-based transport research firm Crucial Perspective.

India’s Central Bureau of Investigation (CBI) accused the airline, some of its employees and third parties of violating foreign direct investment rules while obtaining its license to fly, and of bribing government officials in an attempt to get regulations relaxed to allow AirAsia India to fly international routes.

The CBI said it had searched five AirAsia locations in Delhi, Mumbai and Bangalore, seizing certain documents.

Shares in Asia’s biggest budget airline slid as much as 10.6 percent to a one-year low on Wednesday. Since the Malaysian general election on May 9, they have shed about 20 percent, giving AirAsia a market value of roughly $2.5 billion.

AirAsia shares closed down nearly 7 percent, while the broader Malaysian market .KLSE was down more than 3 percent.

The sharp fall in the airline’s share price triggered a query from Malaysia’s stock exchange.

AirAsia, in response, said it denied all the accusations, which it called “baseless and motivated by considerations that as yet remain unknown”, and said it would defend itself to the fullest extent of law.

“Legal action to protect AirAsia and its interests against these allegations will be taken against any person who is known to have maliciously and frivolously instigated, and or smeared the good reputation of individuals and shareholders of AAIL (AirAsia India Ltd),” it said in a statement to the exchange.

AirAsia India, a venture with India’s Tata Sons conglomerate, said in a statement on Tuesday it refuted any allegations of wrongdoing and was co-operating with all regulators and agencies “to present the correct facts”.

On Twitter, Fernandes did not directly address the accusations but complained about media who reported without fact-checking. A majority shareholder in English soccer team Queens Park Rangers, he also tweeted video of himself playing a virtual reality soccer game. He did not respond to a Reuters request for comment.

INDIA PLANS

The flamboyant CEO, who co-founded AirAsia in 2001 with two aircraft, announced plans for an IPO for the India unit in January, part of a series of strategic moves to monetize assets.

AirAsia India had 14 planes at end-2017, and has plans to expand its fleet to 60 over the next five years. Under Indian rules, it can launch international flights once it has 20 planes.

Png said AirAsia India’s expansion had been too aggressive, resulting in losses doubling in the quarter ended March 31.

“This raises the possibility that AirAsia Group will need to inject more capital into AirAsia India, which may not sit well with AirAsia Group’s investors,” she said.

AirAsia last week reported a record quarterly profit of 1.14 billion ringgit ($286 million), due in large part to the sale of a ground handling services unit.

Since the Malaysian general election earlier this month, Fernandes has apologized for endorsing former prime minister Najib Razak in the election, saying he buckled under government pressure.

Malaysian police are investigating Fernandes at the request of regulatory body, the Malaysian Aviation Committee, which has denied Fernandes’ accusations that it ordered the airline to cancel 120 flights during the election period.

Fewer flights would have made it more difficult for Malaysians abroad to fly home to vote.

($1 = 3.9900 ringgit)