The agencies of the government of Dubai are not exactly known for bottom fishing. Many of their biggest overseas investments have been purchases in expensive, faddish sectors such as infrastructure (P&O), hedge funds (Och-Ziff) and exchanges (the London Stock Exchange). So the decision of the Investment Corporation of Dubai to make a roughly €3bn offer for the shares of Inmobiliaria Colonial, a distressed Spanish property group, is a step into the world of the contrarian investor. Colonial trades at half of its net asset value (NAV) per share and has many characteristics of a good value investment. Its exposure to Spain’s property market does not look too alarming: it mainly owns commercial real estate in big cities and half of the portfolio is in France. The collapse in the share price, which is down 74 per cent over 12 months, is largely explained by the liability side of the balance sheet. The company has net debt of 67 per cent of capital employed. It does not generate adequate organic cash flow to meet its interest payments. The stock price has also been hurt by sales by big shareholders facing margin payments.

In theory, then, Dubai is trying to use its financial muscle to pick up decent assets at distressed prices. The risk revolves around asset values. Due to extreme leverage, NAV calculations exaggerate how cheap Colonial is. In fact, the current market capitalisation assumes about a 13 per cent write-off of gross book assets. And it is not entirely reassuring that General Electric, after considering a bid, walked away. Still, Dubai is playing hard ball: not all of its consideration is upfront cash and the bid is contingent on Colonial’s banks agreeing to restructure the debt. Colonial carries risks, but is the kind of opportunistic target that sovereign funds should hunt in preference to overpriced trophy investments.