In this section, we attempt to calculate the approximate cost of long-term debt to LWUs making use of equation (1.
In particular, individual LWUs could approach financial institutions to determine the relative cost of capital from individual borrowing, rather than the collective approach outlined here.
Of crucial importance to the success or otherwise of the debt issuance is the ability of the LWUs to service both the annual coupon payments and repayment of the principal upon maturity.
According to the DEUS (2006), the aggregate turnover of LWUs for the financial year 2004-05 was $850 million, excluding grants received for capital works.
As outlined in section 2, DEUS estimated that aggregate financial assets held by LWUs for the purpose of asset renewal at $1.
5 million, LWUs are financially advantaged through the funding of infrastructure renewal via long-term debt rather than retained equity.
It is most likely that LWUs would not raise the entire $955 million from a single market issue for two reasons.
While this risk is unlikely to be correlated with the returns on a portfolio of risky financial assets, since demand for the services of LWUs is relatively income inelastic (see, for instance, Hoffman et al.