Arrival said on Tuesday it will convert shareholder hedge fund Antara Capital Master Fund LP's $20 million loan into equity, a move that would help the British electric-vehicle startup lower its debt load.

According to the deal, Antara will not be allowed to sell more than 10% of the traded volume of Arrival's ordinary shares, it receives in the exchange, on any given trading day. Antara has a 1.69% stake in Arrival, according to Refinitiv data.

After the exchange, Arrival will still have about $300 million of principal amount in convertible notes that can be converted into equity.

Cash-strapped Arrival, which saw its cash and cash equivalents slump at the end of the first quarter, has been exploring options, including laying off 50% of its employees, to tackle a fund crunch it has been facing.

EV firms have been experiencing a cash problem over the past few months, as high costs related to production ramp-ups and soaring inflation eat into their reserves.

Arrival in April effected a 1-50 reverse stock split to regain compliance with Nasdaq's listing rules and said it will merge with blank-check firm Kensington Capital Acquisition Corp V to raise cash.

(Reporting by Tiyashi Datta in Bengaluru; Editing by Anil D'Silva and Shinjini Ganguli)