Halim, Chairman of Cigarette Maker Gudang Garam, Dies (Update1)

By Arijit Ghosh and Aloysius Unditu

July 28 (Bloomberg) — Rachman Halim, the billionaire patriarch of one of Indonesia’s richest families and chairman of the country’s second-largest cigarette maker, died. He was 60.

He died at Mount Elizabeth Hospital in Singapore at 5:16 a.m. local time yesterday, said Vidya Boediyanti, a spokeswoman for his company, PT Gudang Garam. She didn’t disclose the cause of death. Halim died after a week of intensive-care treatment for a coronary illness, Detik.com reported, citing company director Slamet Boediono.

Halim and his family were ranked Indonesia’s richest by Forbes magazine for six straight years until 2006. Under Halim, Gudang Garam boosted its market share to 48 percent in 1997 from 35 percent in 1990. The company lost its top ranking in Indonesia in 2006 to Philip Morris International Inc.’s local unit a year after the world’s largest publicly traded cigarette maker paid about $5 billion to purchase PT HM Sampoerna.

“It was under Rachman that Gudang Garam became a market leader,” said Ismanu Soemiran, chairman of the Indonesian Clove Cigarette Association. “His biggest achievement was introducing technology at the company,” at a time when rivals relied on hand-rolling the product, Soemiran said.

Halim, who became a director of the company in 1971, ran Gudang Garam for 17 years as president until 2000, helping the Kediri, East Java-based company become Indonesia’s second-most valuable company by 2002.

Clove-Flavored Cigarettes

Expansion by rivals and the lack of new products resulted in Gudang Garam’s market share of clove-flavored cigarettes, known as kretek, declining 1 percentage point to 27 percent in 2007.

The company’s growth was hampered by its reluctance to sell more shares or borrow money, Yuri Sato, a director at Institute of Developing Economies wrote in a research report titled “Corporate Governance in Indonesia in 2004: A Study on Governance of Business Group.”

The family may have been motivated to keep a “firm grip on a core part of management,” to keep the recipe of the production of clove cigarettes a secret, she said.

Nine out of every 10 cigarettes smoked in Indonesia are kretek, named for the crackling sound made by burning cloves. The spice, which is native to Indonesia, is added to tobacco, imparting a sweet scent and emitting eugenol, a chemical that numbs the throat.

Kretek deliver double the nicotine and almost triple the tar of conventional cigarettes, according to a 2002 paper in the journal Pharmacology Biochemistry and Behavior.

Acquisition Possibility

Halim’s death “opens the possibility of Gudang Garam being sold to an overseas buyer,” said Mulia Santoso, a fund manager at Jakarta-based PT Syailendra Capital, which manages about $109 million in assets.

Gudang Garam surged 19 percent to 6,200 rupiah in Jakarta trading, the biggest gain in nine years, on speculation of a takeover. The gain trimmed this year’s loss to 27 percent compared with a 17 percent decline in the benchmark Jakarta Composite Index.

The company, which constituted 8.8 percent of the Jakarta Composite Index on Jan. 2, 2002, made up 0.7 percent of the benchmark today and ranked 34th in market value.

Halim was the first son of Surya Wonowidjojo, an immigrant from China’s Fujian province. Halim, whose Chinese name was Tjoa To Hin, was born on July 30, 1947. He is survived by his wife, seven children, two sisters and four brothers.

Gudang Garam, which means “salt warehouse,” was set up by Halim’s father in 1958.

The lack of government rules to regulate cigarette advertisements and sales helped make Indonesia the world’s fifth- largest tobacco market and the owners of cigarette companies among the country’s richest people.

In 2007, Halim and his family ranked as Indonesia’s eighth richest with a value of $1.6 billion, while Budi Hartono, owner of Indonesia’s third-largest cigarette maker, Djarum Group, was valued at $3.14 billion.

Halim’s funeral is scheduled for Aug. 3 at his home town in Kediri.