UPDATE 1-French utility Veolia launches 2.5 bln euro capital increase

* Offering 4 new shares for 21 existing shares

* Rights issue priced at 22.70 euros each (Adds detail, background)

PARIS, Sept 16 (Reuters) - Veolia on Thursday launched a 2.5 billion euro ($2.95 billion) capital increase as it looks to develop its new merger with fellow French utility Suez.

As part of the capital increase Veolia will offer four new shares for 21 existing shares at a subscription price of 22.70 euros each.

The price represents a discount of around 21% to Veolia’s close at 29 euros on Sept 15.

“The combination agreement signed on May 14 with Suez will lead to the creation of the world champion of ecological transformation,” Veolia chairman and CEO Antoine Frerot said in a statement.

“As part of the financing of this transaction, Veolia is, today, launching a 2.5 billion euros capital increase, which will strengthen the prospects of the new entity and accelerate its development at a time when environmental concerns have never been so strong,” he said.

$1 = 0.8472 euros Reporting by Sudip Kar-Gupta; editing by David Goodman and Jason Neely