Dubai government-owned Istithmar said it was considering buying into two US companies hit by exposure to subprime mortgages.

The agency, which has bought a stake in Standard Chartered and acquired fashion retailer Barneys New York in the past year, said one of its targets was a financial services firm with potential to expand abroad.

'For every loser there is a winner and some institutions may have to sell some good assets, because of bad assets hit by sub-prime,' Felix Herlihy, chief investment officer of Istithmar, said in an interview.

'Now could be the time to invest,' he said, declining to be identify either target.

Other government agencies from the world's top oil exporting region have said turmoil in global credit markets in July triggered by US home loan defaults had opened up opportunities for acquisitions.

 Abu Dhabi-based Mubadala Development and Dubai International Capital said rising borrowing costs and reluctance to take on risk were making it easier for them to compete with private equity funds, which rely on cheap credit.

Istithmar is, however, the first Gulf investor to say it is targeting the companies that took a hit from subprime defaults.

'They are businesses that have been painted with some kind of subprime brush, when maybe they should not have been,' Herlihy said of the two candidates for investment.

Istithmar chief executive David Jackson said in July the agency could benefit from the credit crisis because it took a long-term view of investments.

 Istithmar, Dubai International Capital and other Gulf funds typically borrow about 70 per cent of their investment cost. Mubadala said in March it leveraged its investments to help maintain financial discipline.

Although Dubai exports little oil compared with its neighbours, the government is tapping the region's windfall from record crude prices by selling real estate, and through tourism and trade.
 
 Istithmar, which agreed to buy Barneys for $942.3 million last month, made its first investment in China in July, taking a 10 percent stake in oil-storage firm Hans Energy for $51 million, Herlihiy said.

Istithmar plans to open an office in Shanghai by this year, he said. 'We are focusing on the building materials sector, the growth in interest in luxury goods, financial infrastructure and urbanisation,' Herlihiy said of Istithmar's China strategy. Reuters