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UPDATE 1-Canada's Ontario province prices C$500 mln green bond - finance ministry

(Adds response from Ontario government, details on transaction)

TORONTO, Feb 12 (Reuters) - Ontario, one of the world’s largest sub-sovereign debtors, priced on Wednesday a C$500 million ($377 million) 7-year green bond, the finance ministry said, with strong demand helping the province to borrow at a better rate than for its regular bonds.

The 1.85% bond, which matures on Feb. 1, 2027, was issued at a spread of 49.5 basis points above the 1.50%, June 1, 2026, Canadian government bond, the ministry said. Initial guidance for the issue was set on Tuesday at a spread of about 51 basis points.

The order book was in excess of C$3.1 billion, which allowed the bond to be priced at a rate slightly better than the province’s benchmark curve, the ministry said.

Green bonds, which are used to finance climate-friendly projects such as clean transportation and clean energy, have been attracting increased investor demand.

The proceeds of the green bond would be used for projects that include light rail transit in Toronto, Canada’s largest city, and flood protection for portions of the city.

It was the first green bond issue done off Ontario’s domestic medium-term note program.

With seven issues since 2014 totaling C$5.25 billion, Ontario is the largest issuer in the Canadian dollar green bond market. The province has projected that its net debt would be more than C$350 billion in fiscal 2019-20. ($1 = 1.3259 Canadian dollars) (Reporting by Fergal Smith Editing by Chizu Nomiyama and Jonathan Oatis)