STOCKHOLM, April 14 (Reuters) - Swedish startup Stegra has raised 1.4 billion euros ($1.7 billion) in new financing led by Sweden's dynastic Wallenberg family, providing a lifeline to complete construction of Europe's first hydrogen-based steel factory, the company said on Tuesday. 

The financing provides a reprieve for one of the few remaining large green steel projects in Europe, where high investment costs and the challenges of scaling green hydrogen have forced several planned projects to be curtailed. 

Stegra has sought for months to raise more cash to finish its plant in northern Sweden.

"This financing reflects the strong conviction in Stegra's business model among new and existing investors, as well as lenders," CEO Henrik Henriksson said in a statement.

The funding would also give Stegra a buffer so it did not "have to go through this type of funding round again in the middle of a project," Henriksson told a later press conference.

CUSTOMERS NOT NERVOUS

Henriksson would not give a specific start for production but said that there would be a gradual phased ramp-up of operations.

Start of production has been pushed back several times, with the latest indications being 2027 prior to this funding news.

Henriksson told Reuters that Stegra's customers were "not so nervous" about getting deliveries on a certain month or day as they can use green and coal-reliant brown steel interchangeably in production, making its challenges different from other green-transition sectors.

That differs from sectors such as batteries, where customers such as  EV makers often rely on deliveries at fixed times to be able to boost production.

WALLENBERG PROVIDES BACKING

Europe has been at the forefront of efforts to decarbonise steelmaking, but recent investment jitters have raised questions over how quickly industries can move away from fossil fuels.

Wallenberg Investments said it had committed to investing 250 million euros, making it the largest investor in Stegra. Its chair, Marcus Wallenberg, said the project had "clear importance to Sweden" and the group saw "a commercially viable way forward".

The Wallenberg-led consortium also includes Singapore state investor Temasek and IMAS Foundation, an investment arm within the IKEA sphere.

The Wallenberg family is Sweden's most influential business dynasty, controlling firms including SEB, Ericsson, Atlas Copco, Electrolux and Investor AB.

The new financing has been agreed in principle, and is subject to credit approvals from lenders and finalisation of documentation, Stegra said.

The investors also intend to nominate Wallenberg veteran Leif Johansson as new board chair. 

($1 = 0.8500 euros)

(Reporting by Greta Rosen Fondahn Marie Mannes and Anna Ringstrom; Editing by Niklas Pollard, Terje Solsvik, Peter Graff and Keith Weir)

By Greta Rosen Fondahn and Marie Mannes