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@M_V
If there's nothing wrong with the rear wheel other than the OLN measurement then you could insert a washer or two between the cone and locknut on either side to bring spacing up to 120mm.
Personally, I'd bring the front chainline into...er...line by replacing the bb with a shorter one. I'm confident you'd be able to get the cranks to sit in the right place without them binding on the bb shell. This would, in my opinion, be highly preferable to spacing the ring away from the crank arm.