ARC of India Ltd, the first asset reconstruction company in the country, is planning to take off with buying out Rs 5,000 crore (Rs 50 billion) worth of bad assets from the system.

About 50 sticky accounts worth Rs 20 crore  (Rs 200 million) and above have been identified which will be transferred to the ARC after it gets the licence from the Reserve Bank of India.

Most of these assets are common in the books of Industrial Development Bank of India, State Bank of India, IFCI and ICICI.

The company has its first board meeting on Monday to formalise the modalities of the assets buyout. A six-member core team which has been working on the project made a detailed presentation to the ARC board consisting of its non-executive chairman N Vaghul and other directors such as Deepak Parekh, PP Vora, PN Venkatachalam, JJ Irani, Ashok Ganguly and YH Malegam.

According to industry sources, the ARC is in the process of appointing independent chartered accountants and investment bankers for valuation of the assets.

"We are waiting for the final guidelines from the Reserve Bank as well as the outcome of the Supreme Court case which will decide on the constitutional validity of the Security Enforce Ordinance. The ARC will take off before March 31," a source familiar with the developments said.

A fully collateralised loan to a running project which has positive EBITDA (earnings before interest, tax, depreciation and amortisation) can fetch as much as 70 per cent of the book value.

Sources said that there will be a negotiated floor price and if the ARC is able to recover more, then the spoil will be shared between the bank or institution and the ARC.

The ARC will be modelled on the asset management company of a mutual fund. After taking over the assets, it will bundle the assets like an MF and create asset portfolios.

At the second stage, pass through certificates against these assets will be issued to banks and institutions as there is no qualified institutional buyer in the market to buy junk bonds.

In other words, the banks and institutions which at the first stage sell sticky assets to the ARC will replace them with the PTCs which will be redeemed by the fourth year. If the net asset value of the PTCs is higher than the face value, the ARC will get 20 per cent share of that and the ARC stakeholders the rest.