UPDATE 2-Petron to spend $1 bln on upgrade; eyes bonds

* To raise funds via bonds, preferred shares

* First tranche of 5 bln peso bonds in May or June

* January-March net income up by a third

* Shares flat (Adds bond, share issue details)

By Manolo Serapio Jr.

MANILA, May 12 (Reuters) - The Philippines' top oil refiner Petron Corp (PCOR.PS) said it plans to spend as much as $1 billion to upgrade its facilities, which it will partly fund through bonds and a preferred share issue.

Ramon Ang, chairman and CEO, said after the annual meeting that bonds worth 10 billion pesos ($210 million) would be issued in two tranches, with the first half likely in May or June.

"We were (also) thinking of issuing 15 billion pesos worth of preferred shares," he told reporters.

Earlier, Petron said in a statement it would invest as much as $1 billion "for additional facilities to enable the full conversion of residual products to more valuable gasoline, diesel, LPG and propylene".

It said funds could come from an offering of fixed rate notes and retail bonds, but Ang said the only plans for now were the bonds and the preferred share sale.

Petron has a capacity of 180,000 barrels per day and sells nearly 40 percent of the Southeast Asian country's fuel requirements. The company is undertaking the second phase of an expansion plan for its petrochemical venture.

Philippine food and beverage conglomerate San Miguel Corp (SMC.PS) (SMCB.PS) has an exclusive option to buy a 50.1 percent stake in Petron from UK investment firm Ashmore Group (ASHM.L).

Ashmore's holdings in Petron are held by its wholly-owned subsidiary SEA Refinery. The group currently holds a total of 90.57 percent in Petron after it bought out the government in December in a $544 million deal.

San Miguel, which is diversifying into power and heavy industry, has until December 2010 to exercise the option to buy the Petron shares.

Ang, who is also the president of San Miguel, said in the statement there were significant opportunities for synergy between the two companies.

"Early indications from various institutions signify a high level of interest for our planned fund raising activities," he said. "This positive response means they recognise the company's solid fundamentals, undisputed market leadership and potential synergies with San Miguel."