McDonald's (MCD) has issued $900 million in debt at a record low coupon as it prepares to increase spending on new restaurants and to refurbish existing restaurants worldwide, with a greater focus in China.

McDonald's currently trails Yum Brands (YUM) in number of restaurants in China and therefore plans to beef up its presence in the country. The bond issuance exemplifies the level of faith of investors in the company and its strong fundamentals.

The stock has fallen more than 10% in 2012 so far but we have a price estimate of $98 for McDonald's, which is about 7% above the current market price.

McDonald's issues debt at record low

McDonald's sold $400 million of 7-year notes with a 1.875% coupon at 2.022% (or 88 basis points above similar Treasury notes) and $500 million of 3-year notes with a 0.75% coupon at 0.843% (or 45 basis points above Treasury notes). Earlier this year, McDonald's sold its $500 million of 30-year bonds for another record low of 3.7%. McDonald's market cap is currently around $93 billion.

The company expects to incur an expenditure of $2.9 billion in 2012, up almost 10% from 2011, as it plans to add another 1,300 restaurants worldwide and reimage its existing restaurants.

Special emphasis on China

In China, the company will open around 225 to 250 new restaurants. At the end of 2011, it had around 1,400 restaurants in the country, most of which were company-operated. The company also plans to hire a whopping 70,000 people in China by the end of the year, almost doubling the current workforce of 80,000. Setting up company-operated restaurants requires a lot more expenditure than setting up a franchised restaurant.

The company plans to increase drive-thrus, dessert kiosks and extend hours of its restaurants in the country to attract more customers to boost same-store sales. Therefore, the overall investment in the country will witness an increase of 50%.

It also plans to put a greater focus on the breakfast segment in the country, something which it has successfully done at home. Currently, 8% to 10% of its revenues in China are derived from breakfast but the company plans to double those figures in the next few years.

Read our previous article, How McDonald's Keeps Winning Over Its U.S. Customers

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