UPDATE 1-Islamic Development Bank prices its largest ever sukuk

DUBAI, Feb 27 (Reuters) - The Jeddah-based IslamicDevelopment Bank priced on Thursday a $1.5 billion,five-year sukuk, the largest ever Islamic bond from thesupranational lender.

The transaction, the AAA-rated lender's first in 2014, cameat a spread of 23 basis points over midswaps and a profit rateof 1.8125 percent, a document from lead managers said.

Pricing was inside the guidance given by lead managers onTuesday, which indicated the deal would price in the mid-to-high20s over the same benchmark.

It was also inside the spread on IDB's previous transactionin May 2013, which came at 30 bps over midswaps.

"Every year we manage to accomplish better pricing for oursukuk and as we issue more sukuk, we will end up having betterpricing because our sukuk will be more tradable and have moreinterest from investors," Abdul Aziz Al Hinai, vice president ofIDB, told reporters at an event in Dubai.

While the pricing was lower than previous five-year issuesby the bank, it still has to pay more than other AAA-ratedmultilateral lenders, which Hinai said was mainly due to a lackof familiarity with sukuk among international investors and thefact IDB has only been issuing paper for the past five years.

"In many regions of the world they don't feel comfortableinvesting in sukuk so we are trying to educate investors," Hinaisaid.

"Most likely the cost of sukuk will be higher because of theawareness issue. It's not a question of quality but becausepeople don't know them (sukuk)."

Investors in the Middle East subscribed to 51 percent of thetrade, with European and Asian investors making up the remaining27 and 22 percent respectively, according to a separate documentfrom lead managers.

Of the more than 60 investors which bought into the deal,which was oversubscribed by an undefined amount, 49 percent werebanks or asset managers. Central banks and fund managers secured42 and 9 percent respectively, it added.

The banks arranging the transaction were CIMB,Commerzbank, First Gulf Bank, HSBC,Natixis, National Bank of Abu Dhabi andStandard Chartered.