HEARTS' debt could be reduced by £12m if a "debt for equity" plan announced yesterday is ratified at an extraordinary general meeting on July 31.

The proposal, announced by Vladmir Romanov, the club's majority shareholder, would see UBIG, the Lithuanian bank of which Romanov is also a majority shareholder, purchase 34,285,714 new ordinary shares at 35p each, effectively increasing their stake in the Tynecastle club from around 82% to approximately 95%. Hearts' debt, revealed as £36m in this year's financial accounts, would be cut by 30% which, in turn, would reduce interest payments by £600,000 per year.

A statement on the club's website made reference to the proposed new 23,000-seater stadium while explaining the reasons behind the proposal. It read: "The motion to reduce the club's debt by 30% through a debt for equity' plan will improve cash flow and provide a long-term base for financing the new stadium, as well as strengthening the balance sheet. It also emphasises UBIG's commitment to Hearts."

Leslie Deans, the former Hearts chairman, gave a cautious welcome to the news and hoped it would strengthen Romanov's long-term commitment to the club.

"I would like to see the club's debt lower, but this is a sensible way forward and demonstrates commitment from the majority shareholder," he said. "It is the same kind of plan that Rangers undertook two or three years ago when they found their debts were on the high ground, and that was successful.

"This proposal can be seen in the same way. Not only does it reduces the club's debt, it is a demonstration of faith. It sends an important message to the fans. Not many people would put £12m into a football club. There are other issues to be addressed at the moment, especially the vacant manager's job, but this is good news. I would find it surprising if there are any objections to the proposal. If there are, I would like to hear their ideas for bringing in £12m."

The announcement also found favour with Hearts' shareholders, despite UBIG's proposed investment diluting the collective stake of individual shareholders from around 18% to less than 5%.

Alex Gowans, chairman of the Heart of Midlothian Shareholders' Association, said: "I think this is excellent news and has really reinforced Romanov's long-term stance on the development of Hearts.

"When he first took a stake in the club the debt was around £17m or £18m and he decided at that stage to finance the development of the club through debt rather than equity. But the £36m debt in the last financial figures was clearly too high and unsustainable, and he has now decided that to finance the club through short-term debt is not the way forward.

"This will take the debt to around £24m and it is quite clearly the correct thing to do. It will help to move the club towards profitability but to do that the club needs to generate more revenue and that is a more difficult thing in the short term.

"Hopefully there will be more positive news coming out of the club in the near future and a managerial appointment would help persuade those who have not yet renewed their season tickets to do so."

Hearts are still to appoint a new team manager, despite beginning their search on January 1, but a statement on the club's website claimed progress had been made.

It said: "A new team manager will be appointed shortly and the board of directors are confident that this manager should improve the situation on the pitch. The board are taking all necessary actions so that the right appointment is made."