Ras Al Khaimah (RAK), part of the UAE federation, plans to sell up to $2 billion of Islamic bonds to fund infrastructure projects, a report said.

The sale is one of a growing number in the Gulf in recent weeks, marking a spike in issuance following a lull when firms shelved Islamic bond plans after defaults on US home loans raised the cost of borrowing, triggering a credit crunch.

The first group of RAK bonds will be at least of benchmark size, typically $500 million, Reuters quoted a source with direct knowledge of the issue as saying. Meetings to market the five-year bonds, or sukuk, start this week.

"The money raised will be used to fund infrastructure development and also to set pricing levels for the RAK private sector," the person said.

Bankers say sovereign sukuk make corporate issuance easier by providing a benchmark against which pricing can be compared.

Ratings companies Fitch and Standard & Poor's each have given the government of Ras al-Khaimah an "A" rating.

Standard Chartered has been mandated as the sole lead-manager and bookrunner for the programme, the London-listed lender said in a statement on Sunday.

Crown Prince and Deputy Ruler of Ras Al-Khaimah Sheikh Saud Bin Saqr Al Qasimi signed the programme agreement with Standard Chartered Bank CEO for Middle East and North Africa (Mena), Shayne Nelson and regional head of Capital Markets, Gilles Franck.

 “The arrangement of this Sukuk Programme is in line with the government's strategic vision of the progressive development of Ras Al Khaimah. The strong credit ratings from S&P and Fitch are also independent votes of confidence in the Emirate's economic program and fiscal position. We extend our appreciation to SCB for facilitating the programme and for its role as our rating advisor," said Adnan Al Maimani, president of the Investment and Development Office.

The inaugural issuance under the programme is expected to be denominated in dirhams, and will be the first rated sovereign issuance in UAE dirhams, the statement said.

Investor appetite for Gulf currency denominated securities is high on expectations that Gulf Arab states may revalue to stave off rising inflation. All the region's currencies except Kuwait's are currently pegged to the falling US dollar. - Reuters & TradeArabia News Service