UPDATE 2-Independent News to give bondholders equity stake

* Sees possible deal helping to cut debt by 350 mln euros

* Rights issue at 0.05 euros a share

* Deal still has to be concluded

* O'Brien presents alternative plan to creditors-source

(Adds comment, more detail, updates shares)

By Carmel Crimmins

DUBLIN, Sept 23 (Reuters) - Independent News & Media (INME.I) is prepared to give bondholders a substantial equity stake in order to secure its financial future, the publishing group said on Wednesday, confirming what an industry source previously told Reuters.

The heavily-indebted company, which needs to refinance an overdue 200 million euros ($295.5 million) senior note, said it planned a debt-for-equity swap that would give bondholders an interest: "in line with that which is now being referred to in media reports."

An industry source told Reuters on Tuesday a deal would involve about 100 million to 120 million euros being swapped for a stake in the company. With a current market value of around 240 million euros that would give bondholders a share of around 45 percent. [ID:nLM672983]

But Independent News, publisher of India's Dainik Jagran, the world's largest-read newspaper, said it would also hold a deeply discounted rights issue at 5 euro cents a share, giving existing shareholders the opportunity to participate in the restructuring.

A rights issue would enable former chief executive Anthony O'Reilly to claw back some of his existing 28 percent stake.

The former rugby international grew Independent News from an Irish-focused publisher to a global media empire but the credit crunch and financial crisis has left the company starved of advertising revenues and lumbered with a 1.3 billion euros debt pile.

The group cautioned on Wednesday that its restructuring proposals still had to be finalised and a source familiar with the matter told Reuters that representatives of Denis O'Brien, Independent News' second-largest shareholder after O'Reilly, had presented an alternative plan to some of the group's creditors.

The source said O'Brien's proposals involved an investment by him of 100 million euros and a cash payment to bondholders.

A spokesman for the telecoms billionaire, who has been a fierce critic of Independent's strategy and the O'Reilly family's stewardship of the group, declined to comment either on the meeting or Independent's proposals.

Shares in the company, which have lost around 80 percent of their value since the start of the financial crisis, were up 5 percent at 0.31 euros in afternoon trade, not much moved by the restructuring proposals.

"The statement is not set in stone and I think people are taking a wait-and-see attitude with this one. It's probably a bit early to say this is a done deal," said one Dublin-based dealer.

Independent News said the debt-for-equity swap, the rights issue and previously-announced asset sales would likely cut its debt by 350 million euros and reposition itself for economic recovery.

In return for the equity stake, bondholders would extend the payback time on the senior note and loosen covenants to give Independent News breathing space. (Reporting by Carmel Crimmins; Editing by David Holmes and Jon Loades-Carter) ($1=.6767 Euro)