The Treasury has reached a negotiated settlement of the long-running legal dispute with one of the 13 Anglo Leasing companies, clearing the main hurdle that has delayed plans to raise money from international markets.

Treasury secretary Henry Rotich told the Business Daily that the government has negotiated a Sh1.4 billion ($16.4 million) settlement with Mercantile Finance Corporation of Switzerland, paving the way for issuance of the Sh174 billion ($2 billion) Euro Bond “in a matter of months”.

“We have more or less closed the chapter on this Anglo Leasing thing. The only pending issues are criminal investigations that are ongoing,” he said.

Part of the proceeds of the bond will be used to retire a two-year Sh52 billion ($600 million) loan borrowed from a syndicate of European commercial banks in mid-2012 while the rest of the money will go towards financing this year’s budget.

When the government issues the bond – and consequently staying out of the local domestic market – the prognosis is that local interest rates will start trending downwards.

This means the planned Eurobond is one of the levers the government wants to use to drive down domestic interest rates.

In December last year, a London Court made an $18 million (Sh1.5 billion) award against the government to Mercantile Finance Corporation. Last month, the Swiss company gave the government an ultimatum to pay up or have its properties abroad attached or auctioned.

The government had been weighing whether or not to pay for what – in the public domain – is still regarded as one of the biggest financial scandals to have happened under former president Mwai Kibaki.

But the realisation that the planned Eurobond was not going to happen as long as the dispute with the Swiss company remained unresolved appears to have forced the government to pursue a negotiated settlement that Mr Rotich says has been concluded.

Reality also dawned on the Kenyan government that opportunities for appealing the London court’s decision did not exist – the dispute having stayed in European courts for many years, through countless stages of litigation.

People familiar with the matter said the political sensitivities surrounding the Anglo Leasing affair had forced the Treasury to mobilise a broad consensus within the government on how to navigate around the London court’s judgment.

The list of institutions, agencies and departments that the Treasury roped in to help negotiate a settlement with the Swiss firm includes Parliament, the Ethics and Anti-Corruption Commission and the Office of the Attorney General.

Last month, Mr Rotich asked Parliament to approve a settlement with the Anglo Leasing company, saying that the government needed to respect the orders of international courts for Kenya to maintain its reputation as a law-abiding nation.

“Refusing to pay only taints the country’s image and damages our credit risk profile,” Mr Rotich said, adding that the government could not afford to overlook the matter at a time it was preparing to go to international markets with a sovereign bond.

Budget committee chairman Mutava Musyimi said there was a real need to clear the debt without delay.

“The discussion about Anglo Leasing contracts came up at one of our meetings, and it was considered a challenge we have to deal with. It is now up to the State Law Office and Treasury officials to tackle the matter, but we agree that these are genuine concerns that need answers,” he said.

First Mercantile was to provide financing for the purchase of satellite telecommunication equipment for the Postal Corporation of Kenya as part of the multi-billion- shilling deals that the government signed with European firms in 2004.