UAE national carrier Etihad Airways is in talks with potential investors, seeking to raise around $1 billion through a debut bond issue, sources aware of the matter told Reuters on Sunday.

The Abu Dhabi government-owned airline is planning to launch its bond through a unit or special purpose vehicle housing its equity stakes in global airlines, two Gulf-based sources aware of the matter said.

It will use the proceeds to lend to its global partners, fund its own expansion plans and partly for general purposes, one source said. It owns stakes in Alitalia, Virgin Australia, Air Berlin, and India's Jet Airways among others.

The airline also expects to take delivery of 16 aircraft in 2015, it said in May, purchases which will cost hundreds of millions of dollars.

Unlike Dubai-based rival Emirates, Etihad has based part of its expansion on investing in other carriers, which has helped it boost revenues and marketing opportunities in key markets.

Etihad declined to comment. The sources spoke on condition of anonymity as the information is not yet public.

Unlisted Etihad is in advanced talks with Goldman Sachs and National Bank of Abu Dhabi to enlist them as lead arrangers for the transaction, two separate sources said, adding they are expected to be joined by boutique firms ADS Securities and Anoa Capital on the deal.

HSBC may also join as an arranger of the transaction, which is likely to happen before the end of the third quarter, one of the sources added.

"Talks are in the exploratory stage, and the company might issue a highly structured bond," said one of the Gulf-based sources, adding the bonds are likely to be junk rated as they will not be guaranteed by Etihad.

Structured bonds are securities with one or more special features, such as with the use of derivatives like options and to a lesser extent swaps, but which features protection of principal if held to maturity.

The potential fundraising comes at a time of intense interest in Etihad's finances, amid allegations by US airlines that Gulf carriers have received more than $40 billion in government subsidies, which the Gulf airlines including Etihad have denied.

Etihad secured a first-time "A" rating by rating agency Fitch in June, while the term "junk" is reserved for all bonds below BBB - by the agency - a minimum of four notches lower.

Etihad has traditionally funded itself with cash from local and international banks, export credit agencies as well as lease financing.

Last year, the company said it would raise $2 billion in loans to fund its equity investments and aircraft purchases.-Reuters