Korea is moving to recapitalize the Korea Development Bank to help it lead debt structuring of distressed shipping lines and shipyards, but data shows a bigger problem may be brewing inside the policy bank’s own jurisdiction.

KDB’s own shipbuilding subsidiary Daewoo Shipbuilding & Marine Engineering has liabilities 730 times larger than its equity capital as of Dec. 31, 2015.

According to data compiled by data provider CEO Score, the world’s No. 2 shipyard that is 49.7 percent owned by KDB was an outlier in leverage growth among Korea’s major companies last year, with its debt-to-equity ratio skyrocketing from 453 percent at end-2014 to 7,308 percent.

Daewoo Shipbuilding’s leverage level is by far higher than those of Hyundai Merchant Marine and Hanjin Shipping, which have ratios of 816 percent and 1,565 percent, respectively.

State-run KDB holds key to the fate of the two companies, whose ongoing struggle to cut debt and stay afloat in the global shipping industry storm is making headlines and being seen as a test of corporate reform in Korea amid economic hardship. KDB is the main creditor of both and a score of others in troubled industries.

“That Daewoo Shipbuliding had amassed losses of such an amount, without fully realizing how serious a situation it was in, just underscores the fact that the company is owned by the government,” an industry insider said, criticizing the lax oversight of KDB.

Daewoo Shipbuilding reported a record loss of 5.13 trillion won in 2015 alone. The company remained in the red in the first quarter of this year, reporting Wednesday an operating loss of 26.3 billion won for the January-March period.

Experts say that Daewoo Shipbuilding will be a big burden on the financial health of KDB and another policy bank Export-Import Bank of Korea, going forward.

Samsung Futures estimates the additional funds that the two banks will have to set aside in provisions for the Daewoo Shipping debt is at least 7.2 trillion won.

Daewoo Shipbuilding, originally part of the now-defunct Daewoo Group, became a subsidiary of KDB in 2000, as a result of a near-2 trillion won state bailout following the group’s demise during the Asian financial crisis in the late 1990s.

The state-run lender, together with the Export-Import Bank of Korea, injected another 4.2 trillion won of funds into the unit last year, as it reported a record loss in 2015.

Korea’s top regulator Yim Jong-yong said Wednesday that the authorities will hold accountable those responsible for the company’s messy finances.

“We have devised our action plans for Daewoo Shipping according to possible scenarios. But on top of those measures, the company will have to take some serious self-rescue work, including a 30 percent reduction in its workforce,” he said.

By Lee Sun-young (milaya@heraldcorp.com)