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CALGARY -- Sherritt International Corp. is proposing to swap its equity and debt for that of its struggling Cuban subsidiary to head off a cash crunch at the end of March.

Sherritt Power Corp., in which Sherritt International holds a 49.7-per-cent stake, is scheduled to pay $45-million to noteholders on March 31, but does not have enough cash to fulfill that obligation, Sherritt International spokesman Ernie Lalonde said yesterday.

Delays in construction caused by the bankruptcy of a key supplier and a 2001 hurricane meant that Sherritt Power's debts came due before it was able to begin generating cash from natural gas plants in Cuba, Mr. Lalonde said.

To avoid default, Sherritt International is proposing that the holders of debt and equity in Sherritt Power exchange their securities for Sherritt International equivalents.

Holders of unsecured Sherritt Power notes would receive 12.7 per cent of the principal value in cash, just over half of the amount called for under the current amortization schedule. Noteholders would receive the remainder of the principal value in 9-per-cent Sherritt International unsecured debentures, due on March 31, 2010, three years later than the existing notes. Mr. Lalonde said such an arrangement would pay a premium to the price at which the bonds are currently trading.

Under the proposal, shareholders would receive 1.25 restricted voting shares in Sherritt International for each Sherritt Power share they held.

Shareholders and noteholders will need to assent to the proposed changes, Mr. Lalonde said, although he was not sure what the threshold for approval will be. Sherritt holds both debt and equity in Sherritt Power, but would not receive replacement securities.