Anyone Repaired an Encapsulated Keel Yacht

Thats not good.
First question.Are you absolutely sure that it is not an encapsulated one piece cast iron keel,that may have some trimming steel shot added on top?
Where is it swelling?In the bilge area along the keel top or along the outside faces of the keel?

The best scenario might be that it is a wide and shallow keel and there is excellent access to the top of the keel to cut open and chip out completely the resin/shot mix.There is moisture and rust expansion now going on throughout presumably.
If it really is all rusty shot ballast.....You are in to (your mate is in to) some fairly grown up boatbuilding to do this right...

If it is a taller and narrower keel profile then myself I would probably bite the bullet and cut open the sides of the keel and remove all of the shot ballast and take a very good looksee at the integrity of the laminate.You are then going to have to relaminate and refill this time with lead pieces and a binder mix..The good news is that lead being heavier the centre of gravity will be slightly lower and the boat therefore may sail a little more upright ..Think of all the work as a valuable upgrade.
Some piccies might help showing the thickness of the keel moulding,top of keel access.Type of boat and manufacturer even,though you may wish to be discrete at this stage..
It can be done,but..
 
I had this in a 1966 W30 that had an area of a long skeg filled with resin bound punchings. Bilge water had got into the ballast from inside the boat and lifted the laminate covering the ballast. I used a disk cutter to remove the laminate (which was also the rear of the cabin sole) chiselled enough of the ballast out and reglassed in the laminate I had removed. BUT I made sure that it was fully sealled and no more water could enter. AFAIK it is still sailing extensively
 
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